Website design By BotEap.comThis article reviews some of the main provisions of the CARES Act regarding pension and retirement plans.
Website design By BotEap.comEarly withdrawals from plan participant retirement accounts
Website design By BotEap.comGenerally, the Internal Revenue Code (IRC) imposes a 10% penalty on early withdrawals from retirement accounts. Early withdrawals are withdrawals before the retirement plan holder turns 59½, before death, or before he becomes disabled.
Website design By BotEap.comHowever, with the passage of the CARES Act, Section 2202, qualified individuals who have been affected by COVID-19 may be exempt from the 10% penalty on early withdrawals. Qualified individuals include the following.
Website design By BotEap.comThe early withdrawals that may be exempt from the 10% penalty are amounts up to $ 100,000 that were taken from January 1, 2020 through December 31, 2020. For those qualified individuals whose early withdrawal meets the 10% exemption % according to the CARES Act, these people must include the amount they withdrew in their taxable income. They can report “income” either in the year it was received or over a three-year period as well. The amount withdrawn can be fully or partially reimbursed to a qualified retirement plan within three years of receipt of the withdrawal.
Website design By BotEap.comDistributions and Hardship Loans from the Retirement Plan under the CARES Act
Website design By BotEap.comIndividuals who are not qualified to receive the 10% exemption on retirement may instead qualify to take a hardship distribution due to the federally declared disaster, COVID-19. An individual’s ability to claim a hardship distribution may vary depending on whether the state in which the participant resides qualifies for individual assistance under the disaster declaration and whether the participant’s retirement plan allows such distributions.
Website design By BotEap.comPlan participants can also borrow from their retirement account, depending on the type of retirement account they have. The maximum loan amount has traditionally been the lesser of half of the participant’s vested account balance or $ 50,000. Loans generally must be repaid in level installments over five years, although the loan term may be longer if the loan is used to purchase or build the participant’s primary residence.
Website design By BotEap.comHowever, the general lending guidelines have been modified with the passage of the CARES Act, Section 2203. The maximum loan amount has been increased to the lesser of the participant’s total vested account balance or $ 100,000 for loans taken. within 180 days of the CARES Act. promulgation. In addition, the maturity dates of new and existing loans have been extended. Due dates for payments due on or after the enactment of the CARES Act through December 31, 2020 are extended by one year and subsequent payments are also delayed by one year.
Website design By BotEap.comRequired Minimum Distributions (RMDs) generally must be taken by individuals before April 1 of the year following the year they turn 72 (or age 70½ for those who turned 70½ before January 1, 2020). However, with the passage of the CARES Act, Section 2203, RMDs have been suspended for the year 2020. RMD suspension applies to individuals who took their first RMD from January 1, 2020 to April 1, 2020 .
Website design By BotEap.comImplications of the CARES Act for Plan Sponsors
Website design By BotEap.comSponsors of single-employer pension plans generally must make a required annual contribution (ARC) to a plan. The required contribution is generally equal to the value of the benefits obtained by the participants in the year, plus a part of the insufficient financing of the plan from previous years. If plan sponsors don’t contribute, they can receive a special tax. However, with the passage of the CARES Act, Section 3608, sponsor contributions due 2020 have been suspended and can be paid, with interest, on January 1, 2021. Section 3608 also allows plans to use the funding percentage for the 2019 plan year rather than the 2020 plan year to determine if plans should impose benefit restrictions.
Website design By BotEap.comPrivate sector pension plans also face a variety of deadlines and requirements imposed by ERISA. The Secretary of Labor has the authority to delay, up to one year, any action required under ERISA in the event of a presidentially declared disaster or a terrorist or military action. With the approval of the CARES Act, Section 3607, the events that allow the Secretary of Labor to delay deadlines have been expanded. Time delays are now allowed if the Secretary of Health and Human Services has declared a public health emergency.
Website design By BotEap.comIn response to the passage of the CARES Act, the Pension Benefit Guaranty Corporation (PBGC) announced that it would extend the deadlines for upcoming premium payments and other filings with the agency. Expiration dates for filings and shares that would have expired on or after April 1, 2020, and before July 15, 2020, have been extended to July 15, 2020. This includes PBGC premiums, reports ERISA Section 4010 for plans with insufficient funds and the annual Form 5500. It is important to note that the due dates for some particularly important or urgent submissions have not been extended.
Website design By BotEap.comCareful planning is required
Website design By BotEap.comThe rules of the ERISA and CARES Act can be very complicated and can vary depending on individual circumstances. Plan sponsors and plan participants will want to fully understand compliance requirements before taking any action.
Website design By BotEap.comMay 2020
