In quick response to the ever-changing impact of the COVID-19 virus, Congress has passed and President Trump has signed the Coronavirus, Aid, Relief and Economic Security (CARES) Act, a two trillion dollar aid package to provide relief from the financial impact of the virus, including relief to retirement plans, health and welfare plans, and their participants.
Defined Contribution plans
The CARES Act provides the following relief for defined contribution qualified plans, IRAs, 403(b) plans and governmental 457(b) plans:
Coronavirus-related distribution – this distribution is exempt from the 10% early withdrawal penalty on withdrawals of up to $100,000, if the hardship withdrawal is take by a “qualified individual.” In addition, if these distributions are repaid over a three-year period, they are not included in the participant’s taxable income.
Plan loan limits – for “qualified individuals,” plan loan limits are temporarily increased to the lesser of $100,000 or their entire vested benefit. These increased limits can be temporarily increased for 180 days after the enactment date.
Plan loan repayments – any repayments for a “qualified individual” on a current loan due from the date of enactment to December 31, 2020 can be delayed for up to one year. This delay does not count toward the maximum five-year repayment period.
“Qualified Individual”- for purposes of this relief is defined as someone who:
- is diagnosed with COVID-19;
- has a spouse or dependent who is diagnosed with COVID-19;
- who experienced adverse financial consequences due to quarantine, furlough, lay off, having work hours reduced, being unable to work due to lack of child care due to COVID-19; closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
- other factors determined by the Treasury Secretary.
Required Minimum Distributions – 2020 required minimum distributions are waived for all participants in defined contribution plans. This relief also includes distribution for participants who turned 70 ½ in 2019 and didn’t take a distribution last year or prior to April 1, 2020.Plans will have until the end of the plan year beginning on or after January 1, 2022 to adopt a retroactive amendment to reflect these changes.
Defined Benefit plans
The CARES Act provides the following relief for defined benefit plans:
Plan contribution delay – any minimum required contributions that are due during the 2020 calendar year will be delayed until January 1, 2021. When the contributions are made, they must include any interest for late payment based on the plan’s effective interest rate.
Benefit restrictions – Plan sponsors may (but are not required to) use their adjusted funding target attainment percentage (AFTAP) for the plan year ending in 2019 for determining whether Section 436 restrictions apply for any plan year that included the 2020 calendar year.
Health and Welfare plans
The following provisions apply to health and welfare plans:
Telehealth and remote care services – health insurance plans can pay for these services without first satisfying HSA-qualifying deductible condition for plan years prior to 2022.
Qualified medical expenses – Certain over-the-counter and menstrual care products are considered qualified medical expenses for HSA, HRA, Archer MSA and health flexible spending account purposes.
If you have any questions regarding the CARES Act and how it may affect your plan, please contact a Nyhart consultant for more information.