n March 31, the American Retirement Association (ARA) provided an expert discussion of the key elements in the Coronavirus Aid, Relief and Economic Security (CARES) Act in a special webcast.
The ARA’s Retirement Education Counsel Robert Richter, Director of Technical Education Bob Kaplan and Marty Pippins, who serves as ARA Director of Regulatory Affairs and American Society of Enrolled Actuaries (ASEA) Executive Director, shared information and insights on the provisions of the newly enacted law and how they will affect plans. They also discussed the prospects for future relief, as well as the role one can play in helping make that a reality.
Highlights
The panelists highlighted four sections of the CARES Act and their effect on retirement plans:
- Section 2202—Retirement Distribution and Loan Rules
- Section 2203—Waiver of Required Minimum Distributions for 2020
- Section 3607—Expansion of DOL Authority to Postpone Deadlines
- Section 3608—Single-employer Plan Funding Rules
They noted that these could be understood to be relevant to participant relief and plan sponsor relief, and that the highlights of each include forms of relief unique to participants and plan sponsors.
Participant Relief
- A new optional distributable event for a “Coronavirus-related distribution”
- Expansion of loan access, repayment flexibility
- Waiver of required minimum distribution (RMD) requirements
Plan Sponsor Relief
- Single employer defined benefit funding
- Extended plan amendment deadline for adopting participant relief (last day of the first plan year beginning on or after Jan. 1, 2022)
- Due date now July 15, 2020 to make deductible retirement contributions for 2019, if the employer’s tax return due date is April 15, 2020
- Department of Labor (DOL) is given expanded authority to postpone certain deadlines under ERISA
Regarding Coronoavirus-retirement plan distributions and loan rules, Richter said that IRS Notice 2005-92, which concerned relief for those suffering directly from the effects of Hurricane Katrina, is critical to understanding these provisions of the CARES Act. It is “the only guidance we have right now,” he said, and he said he considers it “questionable” if any new guidance will come soon due to the many requests for forms of relief that the IRS is receiving. Richter added that one may apply these rules now and amend plan documents later.
Severance is a matter that complicates the provision concerning distributions and loans, Richter pointed out. To wit: The determination of whether an individual has severed employment is based on facts and circumstances. No severance is considered to have taken place if there is a reasonable expectation that the individual will return to work. If severance is determined to have taken place, it is a distributable event for most plans.
The RMD relief the CARES Act provides applies to defined contribution, 403(a), 403(b), 457(b) and governmental plans, as well as IRAs. It does not apply to DB plans. This is the second time that Congress has acted to provide RMD relief, Pippins said, the first having been in 2009. Because of that, he said, “we have a pretty good idea how this will work, but we know that more guidance will be forthcoming, so we don’t quite have all the answers yet.”
But the SECURE Act creates an “interesting twist,” said Pippins. He noted that the SECURE Act changed the ages at which RMDs must take place, which is a complicating factor. So if a participant turned age 70½ in 2019 and has a required beginning date of April 1, 2020:
- but did not yet take the distribution, then no distribution has to be taken in 2020 (for the 2019 distribution year).
- and took a distribution in 2019, there is no relief.
- and took a distribution after Dec. 31, 2019, it is subject to the waiver for 2020 and the rollover and re-contributions rules in IRS guidance.
“We fully expect that there will be allowances made for people who already took RMDs, 2020 RMDs, in 2020 or 2019 RMDs in 2020,” said Pippins, adding, “they have to provide mechanisms to roll that over into an IRA or into the same plan.”
The CARES Act updates Section 518 of ERISA to give the DOL the authority to not only postpone certain deadlines due to a terroristic or military action to now also include a public health emergency declared by Secretary of Health and Human Services, Pippins noted. This was done at the request of the DOL, he said, also noting that “the ARA had talked to the DOL about the need to do an extension of deadlines.” Pippin also pointed out that the ARA on March 30 sent a detailed letter concerning its request for deadline relief.
Kaplan discussed forms of relief the IRS has provided, such as that contained in Notice 2020-8. He stressed that it only applies to forms and payments that were due on April 15, 2020, but that it does apply to everything that did, not just those affected by COVID-19. Kaplan also noted that the IRS has provided relief on the date by which restatements were to have been done, and that the ARA had requested relief on that as well.
Resources
During the webcast, the panel referenced a set of FAQ that the ARA has prepared that is suitable for sharing with colleagues and plan sponsor clients (including via a downloadable PDF). The ARA FAQs are available here.
The webcast recording is available online here. If you have any issues with the recording, for technical support, please contact our Education team at [email protected].
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