Provisions Affecting Employer-Sponsored Plans and Benefits
The Cares Act includes provisions that allow easier access to retirement plan funds during the pandemic. Through Dec. 31, 2020, eligible participants may receive a distribution of up to $100,000 for coronavirus-related purposes. The 10% penalty for early withdrawals from qualified retirement accounts is waived, and income attributable to these distributions would be subject to tax over three years. A “coronavirus-related distribution” is a distribution made to an individual (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced work hours, or is unable to work due to lack of available child care, among others. A plan may rely on a certification provided by the participant that he or she is eligible for the distribution.
In addition, the dollar amount available for loans from qualified plans is increasing for the 180-day period following enactment of the Act, from $50,000 to $100,000. The Act increases the percentage test limit for loans from half the present value of a participant’s benefit to the present value of the participant’s entire benefit. Also, the Act allows loan repayment to be delayed for one year from the original due date. This provision applies to an individual (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced work hours, or is unable to work due to lack of available child care, among others.
Lastly, the Act permits a one-year delay in required minimum distributions for defined contribution plans (under IRC section 401(a)), 403(a) and 403(b) plans, 457 plans and IRAs, but not defined benefit plans.
The Act delays the due date for plan amendments, as long as the plan is operated as though the amendment is in effect and any subsequent writing is made retroactive. Amendments that are required as a result of the Act have to be made by the last day of the plan year beginning on or after Jan. 1, 2022; and, for governmental plans, amendments required as a result of the Act have to be made by the last day of the plan year beginning on or after Jan. 1, 2024.
Employer Repayment of Student Loans
Under the Act, if an employer makes payments on an employee’s student loan interest or principal before Jan. 1, 2021, the payments would be excluded from the employee’s gross income. This exclusion would apply whether the payment is made to the employee or directly to the lender.
Single-Employer Plan Funding Rules
The Act delays minimum funding contributions for qualified defined benefit plan contributions due in 2020 (including quarterly contributions) until Jan. 1, 2021. The amount of each minimum required contribution is increased by interest accruing for the period between the original due date and the payment date. The interest will accrue at the plan effective interest rate for the plan year in which the payment is made.
Health Savings Accounts
The Act would allow a high-deductible health plan with a health savings account to cover remote, telehealth services without a deductible. In addition, the Act would allow funds in health savings accounts and flexible spending accounts to be used to purchase over-the-counter menstrual care products.