The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.3 trillion aid package designed to help the economy as it suffers from the effects of the coronavirus pandemic, contains several provisions that affect employee benefit plans.
Key provisions as shared by the AICPA, EBP Quality Audit Center include:
- Employer contributions to single-employer defined benefit plans – Defers 2020 minimum required contributions (including quarterly contributions) for single-employer plans to January 1, 2021. The amount of any deferred contributions is increased by interest accruing for the period between the original due date for the contribution and the payment date, at the effective rate of interest for the plan for the plan year which includes such payment date. (Sec. 3608. Single-employer plan funding rules.) A plan administrator may rely on an employee’s certification that the distribution is a coronavirus-related distribution. A coronavirus-related distribution is not treated as an eligible rollover distribution and may not be contributed as a rollover contribution to an individual retirement account or another employer retirement plan.
- Hardship distributions– Allows participants to take a coronavirus-related distribution of up to $100,000 from their retirement plan or IRA without a 10% early withdrawal penalty. Eligible distributions can be taken up to December 31, 2020. Coronavirus-related distributions may be repaid within three years. The plan administrator may rely on an employee’s certification that the employee satisfies the conditions for a coronavirus-related distribution. (Sec. 2202. Special rules for use of retirement funds.)
- Participant loans – Allows participants to borrow up to $100,000 from qualified plans (an increase from $50,000 previously allowed), and repayment can be delayed. (Sec. 2202. Special rules for use of retirement funds.)
- Required minimum distributions (RMDs) – Temporarily suspends RMDs for 2020. (Sec. 2203. Temporary waiver of required minimum distribution rules for certain retirement plans and accounts.)
- Minimum requirement contributions — The due date for any minimum required contribution for a single-employer defined benefit plan due in 2020 is delayed until January 1, 2021. Each minimum required contribution that is delayed will be increased to include interest accrued during the delay period at the effective rate of interest applying in the plan year of the original due date for the contribution.
- Carry forward of funding target — A sponsor of a single-employer defined benefit plan may elect to treat the plan’s adjusted funding target attainment percentage for the last plan year ending before January 1, 2020, as the adjusted funding target attainment percentage for plan years that include calendar year 2020.
Plan administrators may begin operating plans to reflect the above changes immediately. Plan documents and/or separate loan policies will eventually need to be amended or revised to reflect any changes that are implemented. The CARES Act provides that retroactive amendments for these purposes generally must be made by the last day of the first plan year beginning on or after January 1, 2022 (December 31, 2022 for calendar year plans) for non-governmental plans and by the last day of the first plan year beginning on or after January 1, 2024 for governmental plans.
- McConnell & Jones Overview of Tax Provisions in the CARES Act
- Journal of Accountancy Summary of Top Tax Provisions
- IRS Payment Deadlines- Top Questions and Answers
- Department of Labor- Families First Response Act, Employers Top Questions and Answers
- U.S. Congress Full Text of CARES Act
- U.S. Treasury Review of CARES Act Provisions