CARES Act employer FAQs: retirement benefits

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law by the President on March 27, 2020. A full overview of the provision and its impact on employers is available here.
 
As a reminder, Alight is not a law firm and does not give legal or tax advice. This information is not a substitute for legal advice applicable to an employer’s specific situations and plans. We suggest employers consult with their legal counsel for guidance.
 
The CARES Act includes significant provisions which will impact both defined contribution (DC) and defined benefit (DB) plans. Highlights of key provisions include:

DC Plan provisions:

• Creates a new coronavirus-related distribution up to $100,000 that is exempt from 10% early withdrawal penalty. The flexibility applies to distributions taken at any point in 2020, and participants can opt to repay all or a portion of the distribution within 3 years.

• Increases the maximum loan amount available from $50,000 or 50% of vested balance to $100,000 or 100% of vested balance. The new loan provision expires 180 days after the CARES Act was signed into law.

• Permits delay of loan repayments due between March 27 and December 31, 2020 by one year.

• Waives DC RMDs due in calendar year 2020.

DB Plan provisions: 

• Allows single-employer pension plans to delay payments due in 2020 until January 2021 (includes interest).

• Extends a plan’s status for benefit restrictions as of December 31, 2019 through 2020.

Frequently asked questions

Defined Contribution Plan Provisions

How does a participant become a “qualified individual” eligible for coronavirus-related distribution, new loan and loan repayment provisions?

Participants are required to self-certify that they meet one or more of the following criteria:

• Diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention,

• Spouse or dependent is diagnosed with such virus or disease, or 

• Experience adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury. 

Are qualified DC plans required to adopt the distribution, new loan or loan repayment provisions in the CARES Act?

No, the retirement provisions in the CARES Act are optional.
 

What administrative steps can employers take to prepare participants who may be thinking about taking a withdrawal or loan?

• Encourage employees to keep contact information up to date with their employer and plan service providers. Updating mobile phone number, email, postal addresses, and financial institution information ensures a more streamlined process if a participant elects to take any type of payment. This also supports faster and more efficient electronic-based communications and direct deposit of payments within a plan’s security procedures.

• Employers may also consider reminders to participants to review and keep their benefit plan beneficiary information updated.  

Defined Benefit Plan Provisions

Does the required minimum distributions relief apply to DB plans?

The required minimum distribution relief included within the CARES Act does NOT apply to DB plans.

Does the coronavirus-related distribution provision apply to DB plans?

It isn’t altogether clear. DB plans are ‘eligible retirement plans’ as referenced within the CARES Act but the design and intent of the coronavirus-related distribution provisions more closely align with a DC plan design. Aside from hybrid plans (cash balance or pension equity plans), DB plans generally don’t allow a distribution of vested accrued benefits at any time after separation from service; a participant must meet the plan’s early retirement eligibility to take payment early. In the absence of agency guidance, the legal employee benefits community appears to be interpreting the Act’s optional COVID-19 distribution provision as applying only to DC plans. However, retirement plan sponsors should consult their legal counsel.  

Is there an extension for the Annual Funding Notice deadline?

As of April 1, 2020, 2:30 pm Central, the Department of Labor (DOL) has not issued an extension to the Annual Funding Notice deadline. The deadline is 120 days after the plan year end. For calendar year plan years, the 2020 deadline is April 29 (due to leap year). The CARES Act includes a provision expanding the conditions under which the DOL can postpone the deadline to include a public health emergency.

What is the single-employer pension plan funding relief?

Minimum required contributions for 2020 for single-employer pension plans are delayed until January 1, 2021. Interest accrues from when each contribution was originally due until the payment date, using the interest rate in effect for the plan year which includes the payment date.
 

What is the relief regarding benefit restriction status?

Single-employer plans can use the adjusted funding target attainment percentage (AFTAP) as of the last day of the plan year that ended prior to January 1, 2020 as the AFTAP for plan years which include the calendar year 2020.
 

Visit Alight’s COVID-19 Employer Updates page regularly for new information and developments to help employers navigate during this uncertain time.