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CARES Act FAQs

The Coronavirus Aid, Relief and Economic Security (CARES) Act enacted on March 27, 2020 includes several key provisions that may positively benefit retirement plan participants. Below you will find additional information about these provisions. Please note that the changes to withdrawals, loans and RMDs are options that can be - but are not required to be - made available within a retirement plan. If a plan sponsor opts to utilize some or all of these provisions, they may do so immediately and amend the plan at a later time.


Distributions

The CARES Act allows for a new type of hardship distribution to be taken by individuals affected by COVID-19. This hardship reason has been classified as coronavirus-related distribution (CRD).

Who is eligible for a coronavirus-related distribution (CRD)?

To be eligible for a CRD, the participant, their spouse or dependent must have either been diagnosed with COVID-19 or the participant must have suffered adverse financial impact due to COVID-19 (loss of employment or business, reduction in hours, etc.). 

What documentation is required to prove eligibility for a CRD?

There are no specific documentation requirements and participants may self-certify that they are eligible.

What is the maximum CRD amount and when can it be taken?

Coronavirus-related distributions cannot exceed $100,000 per participant. Participants are eligible to take these special hardship distributions through December 31, 2020.

Are CRDs taxable?

Yes, these distributions are subject to income taxes. However, the law allows individuals to pay these taxes over a three-year period.

Does the 10% early withdrawal penalty apply to CRDs?

The 10% penalty is waived retroactively to withdrawals beginning on January 1, 2020 for participants who:

  • Have been diagnosed with COVID-19
  • Have a spouse or dependent diagnosed with COVID-19
  • Due to COVID-19, 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 child care, or other factors as determined by the Treasury Secretary

Can CRDs be repaid to the plan?

Yes. A participant who chooses to repay the distributions has three years to repay the amount into a qualified retirement plan. These repayments are not subject to annual retirement plan contribution limits.

Are required minimum distributions (RMDs) impacted by the CARES Act?

Yes. Retirees who would normally be required to take an RMD in 2020 will not be required to do so. This provision does not require that the participant be impacted by the coronavirus and is intended to allow people to avoid withdrawing funds from their retirement accounts during the stock market decline linked to COVID-19.


Loans

Have there been changes to plan loan limits?

Yes. If allowed by the plan, the maximum loan amount available to a participant can be increased to the lesser of $100,000 or 100% of the participant's vested account balance. This is a change from the lesser of $50,000 or 50% of the participant's vested account balance.

Who is eligible for the increased loan limit?

To be eligible for a loan over an above the standard $50,000 or 50% of the vested account balance, the participant, their spouse or dependent must have either been diagnosed with COVID-19 or participant has suffered adverse financial impact due to COVID-19 (loss of employment or business, reduction in hours, etc.). This increase applies to loans made on or before September 23, 2020 (180 days after enactment of the CARES Act).

What documentation is required to prove eligibility for a loan that exceeds $50,000 or 50% of the vested account balance?

There are no specific documentation requirements and participants may self-certify that they are eligible.

Are there any changes to the repayment terms for existing loans?

With plan approval, loan repayments due March 27, 2020 or later may be delayed for up to one year for qualifying employees. Interest will continue to accrue during this period. This option will be available through December 31, 2020.