Impact of COVID-19 on Retirement Plans
Updated on July 21, 2020
Please Note: The subject matter in these FAQs is provided with the understanding that Cetera Retirement Plan Specialists is not rendering legal, accounting or tax advice. Plan sponsors and participants are encouraged to consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
For situations where the specific formal guidance from the Treasury, Internal Revenue Service (IRS), Department of Labor (DOL) and other regulators is pending, answers related to implementation of the CARES Act are guided by prior experiences, when available, and/or good faith interpretation. As a result, while intended to be accurate as of the time of presentation, the FAQ responses provided below are subject to change as specific guidance and regulations become available.
Plan Contributions, Types and Flexibility
- Can the sponsor temporarily suspend withholding 401(k) deferrals during times of economic uncertainty?
- Is pay under the Families First Coronavirus Response considered compensation for plan purposes?
- Do the usual timing rules apply with respect to depositing employee deferrals and loan payments? (5/1/20)
- For plan sponsors concerned about cash flow, what flexibility exists with regard to 2019 contributions?
- What flexibility exists regarding plan contributions? Can we still make changes to plan features and design?
- Can a Safe Harbor 401(k) feature be discontinued mid-year?
- Can employer contribution in a SIMPLE IRA be modified?
- What help is available for defined benefit or cash balance plans if cash flow is a concern?
- Can we make changes to company match? What about profit-sharing contributions?
- Are employer retirement plan contributions included in the “retirement plan contributions” when calculating loan amount under Paycheck Protection Program (PPP)?(6/30/2020)
- If an employer continues to pay employees using the PPP loan funds, do the existing 401(k) employee contributions continue during that time? In addition, is the employer still responsible for employer match during that period?
- What is the penalty for not making required contribution such as safe harbor match?
- What will happen with salary deferrals of the highly compensated employees if the plan decides to suspend its safe harbor feature mid-year?
CARES Act - Relaxed Loan Rules
- How did the CARES Act change plan loan rules?(4/24/20)
- What needs to be done to implement the expanded loan provisions?
- Does the plan have to have a current loan feature to use the coronavirus-related loan option?
- What about participants who had loans outstanding prior to the CARES Act? Is there any reprieve here?
- Can a plan sponsor suspend loan repayments for an employee who is temporarily on an unpaid leave of absence or had work hours reduced?
- If a participant's spouse loses his or her job, can the employer allow the participant to suspend the loan payments?
- Does the loan suspension period increase the loan term?
- What happens if loan repayments are not suspended, and a participant fails to timely make loan repayments?
- Can anything be done to help participants whose loan is in default?(6/30/20)
- Is the maximum loan amount under the CARES Act reduced by an outstanding loan balance? (4/24/20)
- If a retirement plan adopts the relaxed loan provisions available under the CARES Act, must it also adopt the coronavirus-related distribution provisions? (5/6/20)
CARES Act - Required Minimum Distributions Waiver
- Can you tell us what exactly happened with the RMD suspension? What years is the relief applicable to? What accounts are impacted?
- What if an individual turned 70½ in 2019? Is the 2019 RMD also waived?
- Can an individual redeposit the 2019 or 2020 RMD taken before the CARES Act was enacted?(6/30/2020)
- How does the RMD waiver impact the five-year maximum distribution period for inherited accounts?
- Will periodic RMD withdrawals be stopped automatically?
- Which year-end will 2021 RMDs be based on?
- Are RMDs suspended from stretch (beneficiary/inherited) annuities as well?
- Is an individual taking withdrawals under a Series of Substantial Periodic Payments, to avoid a 10% premature distribution penalty, able to pause these payments under the CARES Act? (6/30/20)
Employment Termination Issues
- Does it matter whether a participant is on a furlough or is laid off?
- If we have to lay off employees, how would that impact their plan eligibility once rehired?
- If new temporary employees are hired to supplement employer's workforce during the COVID-19 emergency, when are they eligible to participate in our retirement plan?
- I’ve heard that if more than 20% of employees are terminated then everybody becomes 100% vested. Is there any truth to that?
Plan Withdrawals, In General
- Can a participant request a hardship distribution to cover income shortfall?
- How to determine whether the state is/was in a FEMA disaster area that was designated for individual assistance?
- What alternatives are available to help plan sponsors who may not want to open the floodgates for hardship withdrawals and/or limit them only to those impacted by COVID-19 events?
- Are there any changes in the hardship distribution rules or availability of retirement accounts?
CARES Act - Coronavirus-related Distributions
- What is a coronavirus-related distribution (CRD)?(6/30/2020)
- Who is eligible to take a coronavirus-related distribution?
- Has the IRS expanded the definition of a ‘Qualified Individual’ as allowed by the CARES Act?(6/30/20)
- Do the "adverse financial consequences" apply only to the participant or does it include the participants spouse or children - similar to the "diagnosed" criteria?(6/30/2020)
- Does a financial hardship due to reduction in pay without a reduction in work hours make a participant qualified to take a coronavirus-related distribution? (6/30/20)
- Are there parameters that help define what constitutes ‘adverse financial consequences’? (4/24/20)
- Which retirement accounts are eligible for coronavirus-related withdrawals?
- Is there a time limit for a coronavirus-related distribution?
- Can a participant take a series of coronavirus-related withdrawals? (4/24/20)
- How are coronavirus-related distributions taxed?(6/30/2020)
- How is a Coronavirus-related Distribution (CRD) Act treated for state income purposes? (5/7/20)
- Can you illustrate tax treatment of a coronavirus-related distribution in an example?(6/30/2020)
- How will the tax payments be recaptured when a distribution is a repaid at a later date? (6/30/20)
- Is any relief available to the SIMPLE IRA 2 Year Rule with regard to coronavirus-related distributions?
- What do we have to do to make the coronavirus-related distribution available to our plan participants?
- If a retirement plan adopts coronavirus-related distributions, must it also adopt the loan provisions? (5/6/20)
- If a plan does not currently allow for hardship distributions, can the plan elect to amend their plan to allow only the coronavirus-related distribution and not hardship withdrawals?
- If a participant took a 401(k) coronavirus-related withdrawal and didn’t use all or part of the money, can the funds be deposited to his/her IRA instead of back into the 401(k)?
- Will an individual have to prove that amount redeposited into a retirement account is an earlier coronavirus-related distribution at the time the amount is rolled back into an IRA or an employer-sponsored plan? (4/24/20)
- Can a coronavirus-related distribution from a pre-tax account be redeposited to a Roth IRA?
- How will a coronavirus-related distribution be reported on Form 1099-R? (6/30/20)
- What is the “self-certification” process?(5/6/20)
- What if a plan doesn’t allow for a coronavirus-related distribution, can a former participant claim a plan withdrawal as a coronavirus-related distribution to gain its tax-favored treatment?
- How is the $100,000 limit applied for an individual with multiple retirement accounts?
- Can a plan participant or beneficiary claim a 2020 plan withdrawal as a coronavirus-related distribution (CRD) if the plan didn’t adopt this feature? (4/28/20)
- What options exist for participants who do not fall into the “qualified individual” category as defined by the CARES Act?
- What if a distribution was taken prior to enactment of the CARES Act? Can it be treated as a coronavirus-related distribution?
- If an individual took a 401(k) coronavirus-related distribution withdrawal and didn’t use all or part of the money, may the funds be deposited to his/her IRA instead of back into the 401(k)? What are the rules?
- Do the coronavirus-related distributions rules apply to 457(b) plans? (4/24/20)
- Do the coronavirus-related distributions and relaxed loan rules apply to non-ERISA church plans? (4/24/20)
- Did the CARES Act relax distribution rules for non-qualified plans? (6/30/20)
- Could a CARES Act withdrawal impact eligibility for unemployment benefits ?(4/30/20)
- If a participant takes a CRD from a Roth IRA account, is the distribution considered pro-rata, meaning they would owe taxes on the portion that is “growth” related?
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