As promised in our message last week, we are updating you on the new retirement plan related provisions that were signed into law on March 27, 2020 as a part of The CARES Act.

Below is a brief description of the key CARES Act retirement plan related provisions.  Please note that the distribution and increased loan limit provisions are optional additions to your Plan and to take advantage of them a Participant must be a Qualified Individual.

Qualified Individual

• Participant is diagnosed with a coronavirus (COVID-19 or SARS-CoV-2) illness.
• Participant has a spouse or dependent diagnosed with a coronavirus illness.
• Participant experiences “adverse financial consequences” as a result of a quarantine, furlough, lay-off, reduction in work hours, business closure, the lack of child care, or other factors determined by the IRS due to the coronavirus emergency.

Plan Sponsors may rely on a participant’s certification of the above without documented proof.

Coronavirus Related Distributions

Coronavirus-related distributions from a Qualified Individual’s (see below) vested account balance will be allowed and not subject to current Plan Document provisions.  This relief is offered through December 31, 2020. The following requirements apply to these distributions:

• $100,000 maximum per tax year, aggregated across all Plans and IRA’s.  You must only monitor this limit across all Plans of the employer or controlled group.
• 20% mandatory tax withholding upon distribution does not apply.
• 10% early withdrawal penalty generally applicable to distributions made to participants who are 59-1/2 or younger does not apply.
• Distribution amount may be repaid into an IRA or employer plan within 3 years from the date the distribution is taken.
• Amounts not repaid into an IRA or employer plan are included in gross taxable income, ratably, over 3 tax years (beginning with the tax year of the distribution).  A participant may elect to include all amounts in a single tax year.

Coronavirus Related Loan Relief

The following loan relief is also available to a Qualified Individual (see below):

• Loan limits have been increased to the lesser of $100,000 or 100% of the participant’s vested account balance for loans taken during the 180 day period from March 27, 2020 to September 23, 2020.
• Upon the request by a Qualified Individual, you may suspend loan repayments on outstanding loans that are in good order for a period of up to 12 months. The suspension period is to be added to the original loan term when repayments, including accrued interest, resume regardless of the length of the loan’s original term.  Suspensions may not be requested after December 31, 2020.

Waiver of 2020 Required Minimum Distributions (RMDs)

Qualified 401(a)/(k), 403(b), and governmental 457(b) plans will not be required to make any RMD payments for 2020:

• Participants who turned age 70½ prior to 2019 will not be required to receive an ongoing RMD for 2020.
• Participants who turned age 70½ in 2019 and who have not yet received their 2019 RMD will not have to receive their first (2019) RMD or their 2020 RMD.
• Beneficiaries receiving life expectancy payments will not be required to receive their 2020 beneficiary RMD.
• Beneficiaries who have an account balance in the plan subject to the five-year distribution rule may extend their required distribution by one year (full distribution of the account must be made by the 6th anniversary of the participant’s death).

If a 2020 RMD is provided to any of the above, it may be rolled over to an IRA or employer plan.  At this time the eligible rollover period is within 60 days of the RMD payment.  We expect this timeframe will be extended.

Timing of Plan Amendments

Plan Sponsors have until the last day of the plan year beginning in 2022 to amend their plans, i.e., December 31, 2022 for a calendar year plan.  Though amendments are not required at this time, you may operate the Plan in accordance with these provisions immediately.

Next Steps

Blue Chip will proceed assuming all optional provisions will be allowed in your plan.  Please notify your Compliance Consultant immediately if this is not your intention or if you would like to discuss the options in more detail.  At this time, we await guidance from the various recordkeepers regarding their procedures for Participants to take advantage of these features, which may include action by you as Plan Sponsor to make elections regarding use of the optional provisions.  We anticipate that each provider will be communicating their procedures very soon.

Encourage Participants to ensure their contact information including, email and phone numbers is up to date with your Plan’s Financial Institution allowing for multiple methods of communication should there be any disruption to the US mail.

As always, we are here for your Retirement Plan questions.  This is a lot of new information, please contact us with any questions that arise.  Your compliance consultant is NAME and can be reached at 414-545-0085 or by email at EMAIL.