On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. This bill provides relief for both individuals and businesses impacted by the COVID-19 pandemic. A full summary of the CARES Act can be found here: CARES Act: What it means for Businesses & Individuals.
Below, you will find frequently asked questions as it relates to retirement plans.
What is the impact of COVID-19 on fiduciary liabilities and responsibilities?
Meetings should continue to be held where possible (i.e., virtually) to ensure that your employee benefit plans are continuing to operate in compliance with laws, regulations and plan provisions (e.g., loans, distributions, timely contributions). All investment options should be monitored by your investment advisors.
What options do plan sponsors have for employer contributions?
Plan sponsors may amend the plan for suspension or removal of employer contributions depending on the contribution type (e.g., safe harbor, discretionary) with appropriate notice given to participants. In order to be deductible on the current year tax return, contributions must be made the following year (as late as September or October).
Is there funding relief for employee contributions?
There are no funding relief options for employee contributions as per the Department of Labor rules. Employee contributions, including loan repayments, should continue to be remitted to the plan trust as soon as possible and no later than the 15th business day of the subsequent month. Corrections for lost earnings and any penalties should be considered for violations.
What are the key changes to distributions under the CARES Act?
Withdrawals up to $100,000 will not be subject to the 10% penalty if used for COVID-19-related cash flow. As these funds are taxed over a three-year period, participants are able to re-contribute these funds without regard for standard annual IRS limits. Regardless of COVID-19 eligibility, all required minimum distributions have already been waived for 2020.
How are loans impacted by the CARES Act?
A temporary increase in the loan maximum amount has been set out in the CARES Act. Participants can borrow up to $100,000 or 100% of their vested account balances, whichever is the lesser amount. This is an increase from $50,000 or 50%. This increase is optional for plan sponsors and is not a requirement. Loan repayments due March 27, 2020 through December 31, 2020 are also able to be postponed for up to one year.
How does the CARES Act impact plans that typically do not allow for loans or in-service distributions?
For plans that do not typically allow for loans or in-service distributions, COVID-19-related distributions and loans are still permitted at the plan sponsor’s discretion.
How are our plans impacted by layoffs or furloughs?
Should 20% or more of your workforce be laid off, a partial plan termination is possible and all participants must be immediately vested. Facts and circumstances-based determination is applicable here.
As a furlough is considered temporary, not a termination event, this will potentially impact a participant’s eligibility in various plan offerings or vesting provisions. This does not result in immediate eligibility to take a distribution.
Has the deadline been extended for Form 5500?
In the recent IRS filing, there was no extension relief given to calendar year 2019 plans. Plan sponsors still have the option to file a normal extension (from July 31 to October 15) for calendar year plan.
What types of expenses can be run through our plan to support cash flow needs?
Eligible expenses can be paid out of plan assets, including (but not limited to):
- Nondiscrimination testing
- Mandatory plan amendments
- Investment advisory
- Form 5500 preparation
Has the related audits of plans been extended?
Since the audit of a Plan accompanies the Form 5500 filing, there is no extension of the audit deadline. Therefore, the planning for many 2019 plan audits will more than likely begin in a remote auditing environment due to COVID-19 restrictions.
Additionally, as a response to COVID-19, the AICPA Auditing Standards Board is holding a meeting on April 20, 2020 to consider a delay of the effective date for Statement of Auditing Standard No. 136, which includes significant changes to the reporting and required audit procedures of plan audits.
If you have questions on how your employee benefit plan is affected, please do not hesitate to contact us today!
Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.