How did the CARES Act change plan loan rules?

The CARES Act temporarily increased the loan limit to the lesser of $100,000 or 100% of a participant’s vested account balance for any loans taken between March 27, 2020 and September 22, 2020. Loans need to be repaid within five years and payments need to begin in 2021.

The maximum loan amount needs to be reduced by the highest outstanding loan balance in the 12 months preceding the loan request. For example, a plan participant takes a 30,000 loan on December 1, 2019; on April 15, the same participant self-certifies as a CARES Act qualified individual and requests a maximum loan of $100,000. Because this participant had a $30,000 loan outstanding during the prior 12-motnh period, the maximum loan amount would be reduced to $70,000 ($100,000 minus the $30,000 loan taken on December 1, 2019).

The expanded loan limits are available to any participant who meets a “qualified individual” definition used for coronavirus-related distributions (see Who is eligible to take a coronavirus-related distribution?). Similar to coronavirus-related distribution, plan sponsors can rely on a participant’s self-certification of eligibility to approve the loan request. The feature is open for qualified retirement plans, not IRA based plans.

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Cetera Retirement Plan Specialists is a third-party administrator and may not offer tax, legal or investment advice. Plan sponsors should consult their own tax, legal or investment professionals.