CARES Act Changes for Retirement Plans

March 27, 2020

The $2.2 Trillion Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was recently unanimously passed by the U.S. Senate includes a number of provisions affecting retirement plans that are intended to benefit individuals who have been affected by the Coronavirus. Specifically, these provisions apply to an individual (a “Qualified Individual”): (i) who is diagnosed with SARS-CoV-2 or with Coronavirus (COVID-19); (ii) whose spouse or dependent has been diagnosed with such virus or disease; or (iii) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, or the closing or reduction of hours of operation of a business owned or operated by the individual due to such virus or disease.

The provisions of the CARES Act affecting retirement plans include the following:

  • A distribution made prior to December 31, 2020 of up to $100,000 made from a qualified retirement plan or an individual retirement account to a Qualified Individual (a “Coronavirus-related Distribution”) that is under age 59-1/2 will be exempt from the 10% early distribution tax under Section 72(t) of the Internal Revenue Code.
  • Unless a taxpayer elects otherwise, the income from a Coronavirus-related Distribution may be recognized ratably over a 3-year period.
  • At any time during the 3-year period following the receipt of a Coronavirus-related Distribution, a Qualified Individual may repay all or a part of the amount of the Coronavirus-related Distribution in which case the Coronavirus-related Distribution, to the extent of the amount of the repayment, will be treated as a rollover distribution as to which the Qualified Individual will not be required to recognize income.
  • Coronavirus-related Distributions paid to a Qualified Individual will be exempt from any mandatory withholding requirements applicable to lump sum distributions.
  • The maximum loan that a Qualified Individual may take from a qualified employer retirement plan during the 180-day period after enactment of the CARES Act is increased from $50,000 to $100,000.
  • The date for any repayments of outstanding loans from a qualified employer retirement plan taken by a Qualified Individual that are due before December 31, 2020 is deferred for 1 year and the due date for any subsequent repayments will be adjusted appropriately to reflect the deferment.

As of this writing, the CARES Act is expected to be approved by the House of Representatives and signed by the President. We will continue to monitor the enactment of the CARES Act and other legislation relevant to your retirement plans and are available to advise in this continually evolving legal climate

Please contact us if you would like to discuss how these provisions affect your retirement plans. 

For more information on this or other employee benefit-related matters, please contact:

Fred R. Green at +1 212 592 5910 or [email protected]

© 2020 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.