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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act contains significant changes to employee benefit plans, including relief for plan participants and plan sponsors of qualified retirement plans, as well as expanded benefits for participants in group health plans.
Qualified Retirement Plans
The CARES Act provides qualified retirement plan participants with special early access to their plan funds, and the ability to defer minimum mandated distributions.
1. COVID-19 Related Distributions and Loans
Special CARES Act provisions permit individuals modified access to retirement savings located in their employer’s tax-qualified retirement plans where they self-certify that they:
Specifically, individuals have flexibility in deciding whether they want to distribute funds or take a loan from their qualified retirement plan. For distributions made during the period beginning January 1, 2020, and before December 31, 2020, the CARES Act implements the following provisions and extends these rules to distributions up to $100,000:
For loans, the special relief includes:
Note: one advantage of a qualified retirement plan loan over a distribution is that the loan is not taxable so long as its required payment terms are met by the participant.
2. Minimum Distributions
To minimize the potential negative impact of financial market volatility, the CARES Act also provides a waiver of minimum distributions required to be made in calendar year 2020 from qualified retirement plans, defined contribution plans under Sections 403(a) and 403(b) of the Internal Revenue Code, and eligible deferred compensation plans under Section 457(b) of the Internal Revenue Code.
Under the CARES Act, qualified retirement plans have until the end of the plan year beginning on or after January 1, 2022, to adopt a retroactive amendment to reflect the changes noted below. Such an amendment will not cause the plan to fail to meet certain applicable regulatory requirements of the Internal Revenue Code or ERISA. Government plans have an additional two years to adopt these amendments.
Group Health Plans
1. Expanded Benefits
The CARES Act includes the following expanded benefits under group health plans:
1. Minimum Contributions and Funding
For companies with cash flow concerns, the CARES Act provides additional time to meet 2020 minimum required contributions for single-employer plans by delaying the due date for the minimum required contributions until January 1, 2021. Interest, however, will accrue from the original due date to the actual payment date under the effective rate of interest for the plan. Note that this relief does not apply to other contributions that are required to be made, such as contribution obligations associated with corporate transactions or increases in a plan sponsor’s debt.
In addition, plan sponsors have the option of using a plan’s funding status for the last plan year ending before January 1, 2020, for purposes of determining its funding-based benefit limitations for the plan year. This should enable plan sponsors to avoid restrictions on future benefit accruals and distributions where a plan has a decline in funding status as a result of the market downturn.
2. ERISA Compliance Deadlines
The CARES Act also amended ERISA to permit the Labor Secretary to provide extensions for ERISA compliance deadlines in the event of a public health emergency, as declared by the Secretary of Health and Human Services.
If you would like to discuss the employee benefits, please contact your HCVT professional.