What the CARES Act Means for Your Qualified Retirement Plans

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. While most of the law is devoted to providing economic relief for businesses, a few provisions change some of the rules for retirement plans. This presents possible relief opportunities to explore as well.

Importantly, The CARES Act allows qualifying individuals to seek tax-advantaged financial relief through distributions and loans from their retirement savings accounts. Here is a summary of important topics to discuss with your third-party administrator or Lurie advisor.

Coronavirus-Related Distributions

The bill permits distributions from “eligible retirement plans” to “qualified individuals” of up to $100,000 to assist with the financial burden associated with COVID-19.  These distributions will not be subject to the 10% early withdrawal penalty.  A “qualified individual” is someone who meets any of the following criteria:

  • The individual has been diagnosed with COVID-19
  • The individual’s spouse or dependent has been diagnosed with the virus;
  • The individual has suffered adverse financial consequences as result of being quarantined, furloughed, laid off, having reduced work hours, being unable to work due to lack of child care or any other factor determined by the Treasury Secretary.

The Act permits individuals to self-certify that they meet one of the qualifications above.  The distributions are subject to ordinary income tax and the income tax can be paid back over a 3-year period.  All or a portion of the withdrawal can be redeposited within 3 years and treated as a rollover contribution back into the plan.

“Eligible Retirement Plans” include IRAs, qualified plans, 403(b) and 457(b) plans.  It does not appear that defined benefit or money purchase pension plans will allow distributions prior to age 59-1/2.


Loan limit increase and delayed loan repayments

For the next 180 days, the loan limitation from a qualified plan is increased to 100% of a participant’s vested balance up to $100,000.  There is also a one year extension to the due date of a participant loan otherwise due between March 27, 2020 and December 31, 2020.


2020 Required Minimum Distribution Requirements

Required minimum distributions (RMDs) from 401(k) and profit sharing plans, IRAs, 403(b) plans and 457(b) plans are not required for 2020.  This includes initial RMDs that are due by April 1, 2020.  Defined Benefit Plans are still required to pay 2020 RMDs.


Defined Benefit Plan Funding Delay

The due date for any required contributions to defined benefit and cash balance plans for the 2019 plan year was extended from September 15, 2020 to January 1, 2021.  Note that interest will continue to accrue on the minimum required contribution amount during this period.


For More Information

Our team will continually update our COVID-19 Information Hub with guidance and resources. In the meantime, please don’t hesitate to reach out to your Lurie advisor with your questions.

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This article is for your general education, and does not create a client relationship or any service engagement between you and Lurie LLP. The content of this article is based on the best information available, but official guidance, rules, laws and/or updates may change and become out of date. Please contact your Lurie advisor before acting on any of the information contained in this article.

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