CARES Act for Retirement Plan Sponsors

Apr 16, 2020

CARES Act for Retirement Plan Sponsors

In these unprecedented times the Federal Government has passed into law the Coronavirus, Aid, Relief and Economic Security (CARES) Act.  Below is a summary of the impact on a company that provides retirement benefits to their employees. There are additional benefits for employers and employees to look into as well:

  1. Up to $100,000 Hardship distributions are allowed for individuals pre-age 59 ½  affected by COVID-19 with no 10% penalty and no 20% mandatory withholding.
    1. Individuals (spouses or Dependents) must be diagnosed with Sars-CoV2 or Covid-19 by a CDC approved test or who suffered adverse financial circumstances because of quarantine, laid off, reduced hours, or unable to work because of lack of childcare.
    2. Ability to repay distribution to IRA or qualified plan over 3 years with no tax liability.
  2. Loans within 180 days of 3/27/2020 have increased their maximum limit from $50,000 or 50% of account balance to $100,000 or 100% of account value.
    1. If you do not repay loan, tax liability can be stretched over 3 years beginning with the year loan was taken.
    2. Loan repayments are frozen until the end of 2020
  3. Coronavirus loans have no 5-year payback.  There is still a 5 year loan term for all other loans.
  4. If you terminate 20% of your employees that can trigger a partial 401k plan termination for the company.
  5. Required Minimum Distributions’ from Defined contribution plans due to be taken by April 1, 2020 or any 2020 RMD’s have been postponed until January 1, 2021.
  6. Minimum Funding contributions due in 2020 for single employer plans postponed until January 1, 2021, with addition of interest.
  7. The Act expands the types of employers whose pension plan can qualify for treatment as cooperative.
  8. Plan amendment needs to be filed by end of plan year in 2022.
    1. Loans and hardships are not required by law, but plans can “add on” the options for COVID-19

If you have additional questions or would like to have an individual consultation on how you can best utilize these benefits for you and your family please reach out to one of our Advisors at 330-659-7140 or kjparker@hfswa.com  to schedule time.

Written by:  Justin Hamlin, CFP® and Todd Rohrer

These are the opinions of Justin Hamlin and Todd Rohrer and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice.  Investing involves risk.  Depending on the types of investments, there may be varying degrees of risk.  Investors should be prepared to bear loss, including total loss of principal.  The strategies discussed herein are not designed based on the individual needs of any one specific client or investor.  In other words, it is not a customized strategy designed on the specific financial circumstances of the client.  However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model.  You are also provided the opportunity to place reasonable restrictions on the securities held in your account.