The Coronavirus Aid, Relief, and Economic Security Act (the “Act”) was passed by the US House of Representatives by a voice vote today after being passed by the US Senate on Wednesday. The bill now heads to the White House, where President Trump is expected to sign it very soon.  Below are some key retirement plan features of the Act:

  • Coronavirus-Related Distributions. The Act would allow participants in eligible retirement plans to take distributions in 2020 of up to $100,000 from their plan account without incurring the 10% early distribution tax that would otherwise apply to payments made before age 59-1/2. The distribution must be a “coronavirus-related distribution” which is a distribution made in 2020 with respect to a “qualified individual.” A “qualified individual” is (1) a participant who has experienced adverse financial consequences resulting from being quarantined, furloughed, laid off or having a reduction in work hours or is unable to work due to lack of childcare on account of the virus, or (2) a participant, spouse or dependent who has been diagnosed with coronavirus by a test approved by the CDC. Employers can rely on a participant certification that the distribution was a coronavirus-related distribution. The distributions would not be subject to mandatory 20% withholding.  It appears that these distributions are permissive rather than mandatory.  Accordingly, it appears that plans may be able to cap such distributions at something less than $100,000 if desired.
  • Income Inclusion Over Three Years. A coronavirus-related distribution would be included in the qualified individual’s taxable income ratably over a three-year period following distribution.  However, the individual can elect to treat it as taxable in the year of distribution.
  • Repayment of Coronavirus Distributions. The Act would allow a qualified individual who takes a coronavirus-related distribution to repay it to the plan within three years of taking the distribution. Repayment will be treated as a rollover contribution to the plan.
  • Temporary Increase in Plan Loan Limits. The Act would temporarily increase the maximum amount that a qualified individual may borrow from his or her plan account balance to $100,000, for the period beginning the enactment of the Act is commenced and ending 180 days later. In addition, qualified individuals can borrow up to the lesser of $10,000 or 100% of their account balance instead of the current limit of 50% of their account balance. It appears that these provisions are permissive rather than mandatory.
  • Loan Extensions. The Act includes a one-year extension of time to repay a plan loan if the otherwise applicable due date occurs between the date the Act is enacted and December 31, 2020.  It appears that remaining payments, plus applicable interest, can be re-amortized over the extended period, and that these extension rules are mandatory.  This may be an important feature for employees terminated in 2020 whose loans might otherwise default in connection with their termination.
  • Required Minimum Distributions.  The Act allows plans to suspend making required minimum distributions in 2020. This would include participants who turned age 70-1/2 in 2019 and have not received a 2019 distribution. Amounts distributed in 2020 that would have been required minimum distributions but for the Act, would not be treated as eligible rollover distributions and, therefore, should not require the tax notice under Code Section 402(f). This provision is substantially similar to relief that was provided in connection with the 2008 financial crisis. It appears that the suspension of required minimum distributions for 2020 is permissive rather than mandatory.  Given that required minimum distributions may already be in process based on the normal distribution deadline, this provision may have limited utility.
  • Plan Amendments. Plans would need to be amended to reflect the Act changes by the last day of the plan year beginning on or after January 1, 2022 (i.e., by December 31, 2022 for calendar year plans).

The Act may represent welcome relief for employers and employees dealing with the fallout from Covid-19.  Ultimately, there will be policy and implementation issues for employers to consider (e.g., what provisions to implement, coordination with record keeper capacity, etc.) and appropriate employee messaging regarding these changes will be key.


Baker McKenzie has put together a global resource center for all key insights and upcoming webinars as a central repository to assist our clients to understand, prepare and respond quickly to the significant legal and business challenges posed by COVID-19. Please use the following link to visit the Coronavirus Resource Center for additional resources. Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.

If you need more information or have any questions, please contact your Baker McKenzie attorney.

Author

Christopher G. Guldberg has been practicing in the employee benefits and executive compensation areas since 1992 and is a senior member of the Firm’s benefits practice. Mr. Guldberg advises on a wide range of benefits issues including design, implementation, operation and termination of tax-qualified retirement plans and welfare benefit plans. He assists with all aspects of regulatory compliance associated with employee benefit plans and regularly advises clients on ERISA's fiduciary and prohibited transactions provisions. He also has helped clients correct benefit plan defects through DOL and IRS voluntary correction programs and has assisted clients with negotiated settlements with regulatory authorities.