4 years 3 weeks ago
Hi Nevin -- could you please clarify whether for the deferral of existing loan payments, that applies to only qualified individuals or to ALL individuals with an existing loan? The above seems to suggest the latter. Thank you!
The legislation is less than a week old, and amidst the scramble for answers and action(s)—well, it’s inevitable that some things will get overlooked, and other important things will be misconstrued.
Here are five things you’ll want to keep straight.
The Coronavirus-related distribution is not a hardship distribution.
It’s a separate distribution category that has unique treatment. It is not subject to the 10% premature distribution penalty, and 20% withholding does not apply (you do have to pay ordinary income taxes on it, however). It applies only to distributions to qualified individuals between Jan. 1, 2020 and Dec. 31, 2020. Oh, and it can be repaid (if so, you’ll presumably be able to recover those taxes you paid on the distribution, though exactly how isn’t yet clear).
Plans do not have to offer the expanded Coronavirus-related distribution or loan options.
Though it seems likely that many will (and there have been some reports that some providers will basically assume that as a default), plan sponsors have to choose to do so, and (eventually) amend their plans for the new option(s). While you can start utilizing any of these provisions immediately, the plan must be formally amended for those new options generally no later than the last day of the first plan year beginning on or after Jan. 1, 2022.
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Existing loan repayments can be deferred.
Yes, you’re probably read that for qualifying[i] employees, the traditional plan loan limit of $50,000 of half of the vested account balance are doubled to $100,000 or 100% of the vested account balance. For COVID-qualified individuals with an outstanding loan, scheduled repayments through Dec. 31, 2020 can be delayed for a year—although interest must be calculated and remitted as well.
The waiver of required minimum distributions (RMD) doesn’t apply to defined benefit plans.
Yes, RMDs for the 2020 Distribution Year are waived and do not need to be distributed. And yes, the CARES Act also waives the requirement for any RMD that is required to be paid in 2020 (there are options to rollover and/or recontribute the distribution, if it’s already been distributed). But the RMD waivers apply only to individual account plans, including defined contribution plans, money purchase plans, and IRAs—oh, and it applies to RMD payments to beneficiaries as well.
There’s some relief for student loan debt in the CARES Act.
That’s right, while it’s not technically a retirement provision, we all know the financial impact that student debt has had on retirement savings. Well, the CARES Act expand the tuition reimbursement programs (under §127) that currently allow workers to not count as taxable income up to $5,250 of tuition reimbursements to include employer payments to employee (or lender) prior to Jan. 1, 2021. This includes principal or interest payments, includes tuition, fees, books, etc., but is only effective for payments made after the date of enactment (3/27/20).
Be sure to check out (and share) our new FAQs on the Coronavirus, Aid, Relief and Economic Security (CARES) Act at https://www.napa-net.org/coronavirus-aid-relief-and-economic-security-cares-act-faqs.
Footnote
[i]BTW, a qualifying individual is defined as someone:
1. who Is diagnosed with the virus (via test approved by CDC)
2. whose spouse or dependent is diagnosed with virus, or
3. who experiences adverse financial consequences as a result of:
- quarantine
- furlough
- laid off
- hours reduced
- unable to work due to childcare
- closing of business
- or other factors as determined by the Secretary of the Treasury
The plan may rely on participant certification that those condition(s) are met.
