By Cory Cuffley, CPA, CRPS®, AIF®

In response to the growing crisis surrounding COVID-19, the President signed into law the Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, on March 27, 2020. This is a significant piece of legislation that includes numerous items of financial relief for individuals and businesses. Below is a brief summary of the Act as it relates to retirement funds.

Access to Retirement Accounts

1. Individuals will be allowed up to $100,000 in distributions from a Qualified Plan or Individual Retirement Account (IRA) for coronavirus-related issues

A. Must be a qualifying individual
B. Early withdrawal penalty of 10% for individuals younger than 59 and is waived
C. Not subject to 20% mandatory federal withholding
D. Distribution can be repaid into an IRA or Qualified Plan within 3 years to avoid taxation
E. If not repaid, distribution can be included in income ratably over a 3-year period

2. Retirement plan loan limits have increased to the lesser of $100,000 or 100% of their vested account balance.

A. Must be a qualifying individual
B. Increase only valid for the 180-day period beginning on March 27, 2020
C. Loans initiated between March 27 and December 31, 2020 can delay start of payments for one year

Individual Eligibility

For an individual to be eligible for either the COVID-19-related distribution or the COVID-19-related loan, one of the following criteria must be met:

1. The individual must have been diagnosed with SARS-CoV-2 or COVID-19.
2. The individual’s spouse or dependent must have been diagnosed with SARS-CoV-2 or COVID-19.
3. The individual experiences adverse financial consequences from any of the following:

A. quarantine
B. furlough
C. being laid off
D. reduction of work hours
E. unable to work due to lack of childcare

Note to Employers

The above-mentioned changes are significant for both plan participants as well as plan sponsors. A few things for Plan Sponsors to note:

1. Plan sponsors can rely on a participant,s certification of eligibility for the provisions above.
2. Plan sponsors can CHOOSE to allow these distributions or loans but are not required to do so.
3. All COVID-19 related distributions are only valid until December 31, 2020.
4. The increase in loan availability does not require a plan to allow for the loans.
5. Any plan document amendments related to the COVID-19 legislation are not due until 2022.

As with most newly issued legislation, we fully expect to receive additional guidance on these provisions. As we receive additional information, we will be sure to pass that along to you.

Cory CuffleyCory’s primary responsibilities include working with the firm’s corporate retirement plan clients, providing participant education, and business development. He holds a master’s degree in Accounting and Professional Consultancy, and recently was honorably discharged as a member of the Pennsylvania Army National Guard. Cory enjoys spending time with his wife Megan, their daughter Claire, and their two dogs.