Fellow Retirees:
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law. While the Association cannot offer your financial advice or recommendations, we believe sharing news of the federal CARES Act, and how it can possibly impact you and your family, might be of value to our members and their families.
While this law covers many aspects other than retirement plans, the immediate effects on retirees and our retirement savings plans are as follows:
Coronavirus Related Distributions
Coronavirus Related Distribution is available to any eligible plan participant who meets any of the below criteria:
- Diagnosed with SARS-CoV-2 or Covid-19 by a test approved by the Centers for Disease Control and Prevention (CDC).
- Any of the immediate family members such as spouse or dependents have been diagnosed with SARS-CoV-2 or Covid-19 by a test approved by CDC.
- Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced due to such virus or disease, closing or reducing hours of business owned or operated by the individual due to such virus or disease.
- Other factors as determined by the Treasury Secretary.
- The participant’s statement would have to be taken in regards to whether the participant qualifies for a Coronavirus Distribution.
These distributions will have certain requirements:
- The maximum amount that can be requested for a distribution is $100,000 per tax year. This distribution window ends on December 31, 2020.
- 20% withholding will not occur at the time of distribution and is not eligible for rollover.
- The taxes on the distribution can be paid at the time of distribution or spread over 3 years by the plan participant.
- If participant is under age 59 1/2 then the early withdrawal 10% penalty will not apply.
- The amount of the distribution can be replenished back by the participant within a 3-year time frame if desired so that their retirement savings is not diminished.
Participant Loans
There are 2 available loan reliefs being provided:
New Loan
If the plan allows for loans the plan participant can take a maximum loan in the amount of $100,000 or 100% of their vested account balance. The duration of the loan would be for 5 years.
Suspending existing outstanding loan repayments
If a participant requests to suspend their loan repayments, then a plan sponsor will be able to suspend their loan repayments for 1 year. The request to suspend loan repayment needs to be made by the participant by December 31, 2020.
The 1-year suspension of loan repayments is added to the original loan term and interest continues to accrue regardless of the length of the loan’s original term.
This would apply to all plan participants even if they were furloughed or temporarily considered laid off.
Both the Coronavirus related distributions and loan relief is optional, and the plan trustee would need to allow it in the plan. If the above relief is offered an amendment to the plan document will be required to be adopted by the last day of the plan year beginning in 2022. Example December 31, 2022 for a calendar year plan.
Required Minimum Distribution (RMD) for 2020
With all the turmoil in the stock market we have got good relief of not mandating the participant to take an RMD distribution for 2020. Under the SECURE ACT as you may know the minimum RMD distribution age has increased to age 72 in 2020.
An RMD Distribution will not be required in the following instances:
- Participant who reached 70 1/2 prior to 2020 will be exempted and not required to take a RMD distribution for 2020.
- Participant who reached 701/2 in 2019 and who has not taken his/her first RMD for 2019 by December 31, 2019 will not have to receive their first (2019) RMD or their 2020 RMD.
- Participants who reach 72 in 2020 will be exempted to take their 2020 RMD.
- Beneficiaries receiving life expectancy payments will not be required to receive 2020 beneficiary RMD. If the beneficiary was using the 5-year distribution rule then in essence the beneficiary will now have 6 years to cash it out from the time of the participant’s death.
The full text of the new law can be found here: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text#toc-H638004C502804947B4CFB9B4B770C2F2
Please do not contact the Association for financial, or tax advice. We recommend you contact your specific plan administrator or tax and financial advisor for further information or guidance.
Apple Podcasts
Spotify