The Families First Coronavirus Response Act “FFCRA” and Coronavirus Aid Relief and Economic Security Act “CARES Act” have impacted employee benefits and retirement plans in general. Here’s some of the many changes included in those acts that we want you to be aware of and suggestions for actions to take.
- CARES Act allows early withdrawals made on or after Jan. 1, 2020 without the 10% penalty for early withdrawal, up to $100,000 for coronavirus-related purposes. In addition, such distributions would be subject to tax but spread over 3 years (mandatory 20% withholding waived), and the funds may be recontributed withing 3 years to an eligible plan without regard to that year’s cap on contributions.
- Act allows for waiver of the required minimum distribution rules for calendar year 2020.
- Participant loans (at the option of the employer) can be increased from the current $50,000 limit to $100,000, and the percentage of the account balance limit has increased from 50% to 100%.
- Participant loan repayments on existing loans may be extended for up to one year.
- Employer may consider reducing employer matching contributions to the plan.
- Affected participants must be treated as fully vested, in the event of a “partial plan termination.” Where there are significant layoffs or furloughs, employers will need to watch for possible “partial plan terminations.” A temporary furlough that later results in a termination could cause this event.
- Plan amendments: Although CARES Act changes do not have to be adopted until later (December 31, 2022 for calendar year plans), other amendments such as a benefit accrual freeze may need to be adopted immediately. Keep good record of the operational changes being implemented now so that an appropriate amendment can be drafted later.
Plan Administration Action Item
Consult with your plan advisors regarding operational changes and see EBSA Disaster Relief Notice 2020-1. Such items to consider are:
- Notices/Communications required to employees. Are work computers available to provide electronic disclosures as required under DOL rules.
- Spousal Consents for distributions. Are mobile notary services available for your plan is notarized consents are required.
- Black-Out Periods contemplated, as market volatility risks and notices may be needed.
- Paid Leaves / Definition of Compensation – read your plan document and determine if a leave is a severance of employment, and if paid leave is treated as compensation.
- Beneficiary Designations – this may be a good time to remind employees to update their designations.
- QDROs – Unfortunately divorce rates may increase, so review and update the plan’s QDRO procedures.
- Disaster Declaration – as states are declared federal disaster areas, review plan document to see if the plan already incorporates disaster relief provisions.
Plan Administration Action Item
Consult with your plan advisors regarding the following additional operational changes and see IRS Notice 2020-23. Such items to consider are:
- Elimination of Required Min. Distributions for 2020. Take steps to eliminate any operational procedures that would automatically make RMD distributions in 2020.
- Form 5500 Reporting: The DOL has been granted authority to extend filing deadlines, but to date has not done so. Be prepared to file on time or explore the use of voluntary late filer programs.
- Pre-Approved Documents/Plan Amendments: IRS has extended the deadline to restate 403(b) plans from 3/31/20 to 6/30/20, and to restate DB plans from 4/30/20 to 7/1/20.
So, what’s next? While the above listed action items and comments are not legal advice, we suggest you consult with your plan advisors or ERISA attorney to understand how these items may relate to your individual plan. And, we’re always here to help as well.
Mike specializes in attest and audit services for privately held businesses across a variety of industries. His clients range from manufacturers and auto dealerships to service firms, wholesalers and distributors. Mike also oversees audits of 401(k) benefit plans and is a peer reviewer for the AICPA Peer Review Program administered by the California Society of Certified Public Accountants.
You can reach Mike at 714-672-0022.
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