CARES Act Provides Early Access to Retirement Funds and Other Retirement Plan Relief
by Kathy D. Aslinger, Esq.
March 27, 2020
Note: Other COVID-19 related articles can be found here, here, and here.
CARES Act provides early access to retirement funds and other
retirement plan relief due to COVID-19
much-awaited phase three of coronavirus-related legislation passed the House and
was signed into law the afternoon of March 27, 2020. Known as the Coronavirus, Aid, Relief and
Economic Security (“CARES”) Act, the almost 1,000-page stimulus package contains
several provisions impacting retirement plan access and operation.
To aid employees struggling financially due to COVID-19, the CARES Act provides
easy access to retirement funds through coronavirus-related distributions and
To aid plan participants who are subject to required minimum
distributions (“RMDs”) and who would prefer to avoid distributions at a time
the market is significantly down, the Act waives RMD requirements for
2020. We have summarized these and other
relief provisions below.
The CARES Act creates a new type of hardship distribution called a
“coronavirus-related distribution,” which is available to plan participants who:
(1) are diagnosed with COVID-19;
(2) have a spouse or dependent diagnosed with COVID-19; or
(3) experience adverse financial consequences as a result of being
quarantined, furloughed, laid off, having work hours reduced, or being unable
to work due to lack of childcare resulting from COVID-19.
If coronavirus-related distributions are added to a plan, qualifying
individuals may take a distribution in an amount up to $100,000, which is exempt
from the 10% early withdrawal penalty.
Participants taking a distribution may spread the income tax liability over
a three-year period, as well as repay the distribution tax free over the next three
These provisions may be added to “eligible retirement plans,” which
include qualified plans (including both defined contribution and defined
benefit plans), 403(b) plans, governmental 457(b) plans, and individual
retirement accounts (“IRAs”). Plans may
adopt coronavirus-related distributions even if they do not otherwise permit
All coronavirus-related distributions must be taken before December 31,
The CARES Act also increases the loan limits to the lesser of $100,000
or 100% of a participant’s vested account balance—raised from the lesser of
$50,000 or 50% of a participant’s vested account balance—for any participant
who meets the eligibility conditions described above for a coronavirus-related
Additionally, any qualified participant meeting the criteria described
above with an outstanding loan during the period beginning on enactment and
ending December 31, 2020, may delay repayment for one year.
Waiver of Required Minimum Distributions (“RMDs”)
Not all CARES Act provisions take money out of participants’ retirement
accounts. For participants who are
concerned about the volatile stock market and who would prefer to keep funds in
their accounts to give the market time to improve, the Act waives RMDS for 2020
for participants over the age of 72. The
waiver applies to distributions from defined contributions plans, including
401(k), 403(b), and governmental 457(b) plans, as well as IRAs.
The Act permits a retirement plan to implement these changes
immediately, so long as the plan is amended to incorporate the changes on or
before the last day of the first plan year beginning on or after January 1,
2022 (i.e., before December 31, 2022 for a calendar year plan). Governmental plans have an additional two
years to adopt an amendment.
Funding Delay for Defined Benefit Plans
Employers facing minimum funding deadlines for their defined benefit
pension plans while suffering from reduced income due to COVID-19 also see some
relief. The CARES Act delays 2020
minimum funding deadlines for plans subject to the Employee Retirement Income
Security Act (“ERISA”) to January 1, 2021.
Generally, employers must contribute the minimum required contribution
no later than 9 ½ months following the end of a plan year, which is September
15 for a calendar year plan. The Act
delays the due date for any minimum funding due during 2020 to January 1, 2021. The required contribution must be contributed
by January 1, 2021, with interest calculated from the original due date.
Expansion of DOL Authority to Delay Deadlines
Finally, the CARES Act expands the authority of the DOL to delay
certain deadlines under ERISA to include a public health emergency declared by
the Secretary of Health and Human Services under the Public Health Service Act.
Our attorneys are continuing to monitor the impact of the ever-changing
COVID-19 landscape to employers.
If you have questions, please reach out to us