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2020 CARES Act: How it Affects Your Retirement Plan

2020 CARES Act: How it Affects Your Retirement Plan

April 01, 2020

On March 27, 2020, in response to the COVID-19 global pandemic, Congress passed the Coronavirus, Aid, Relief, and Economic Security (CARES) Act (also known as HR 748). This is historic and sweeping legislation created to help keep workers paid and employed, allow businesses to remain operational,  make necessary health care system enhancements and stabilize the economy.


The Act contains a few key provisions designed to assist retirement plan participants who are struggling financially during these unprecedented times. Here is a quick summary of these key provisions:


Hardship Distributions

The CARES Act waives the Code Section 72(t) additional 10% penalty tax on early (pre-age 59 ½) withdrawals up to $100,000 from a retirement plan or IRA for an individual who:


  • Is diagnosed with COVID-19
  • Whose spouse or dependent is diagnosed with COVID-19 
  • Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, other factors as determined by the Treasury Secretary.


A coronavirus-related distribution under the Act can be included proportionally in the qualified individual’s taxable income over a three-year period, unless the individual elects to have it taxed in the year of distribution. In addition, the distribution will not be treated as eligible rollover distributions, so the mandatory 20% withholding does not apply.


The Act also allows a qualified individual who takes a coronavirus-related distribution to repay that amount tax-free back into the plan within three years of taking the distribution. Such repayment would be treated as a rollover contribution and not subject to annual maximum contribution limits.


Plan Loans

For individuals who qualify for a coronavirus-related distribution, the CARES Act also doubles the current retirement plan loan limit to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. This increased loan amount is available for loans made during the 180-day period beginning on the date of enactment. In addition, the Act extends the due date of any qualified individual’s loan repayment that would otherwise be due during 2020 (but on or after the date of enactment) to one year after the otherwise applicable due date.


Plan Amendments

Retirement plans may choose (but are not required) to adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans. The plan amendment deadline for adopting these new rules would be no earlier than the last day of the first plan year beginning on or after Jan.1, 2022 (Jan. 1, 2024 for governmental plans), or later as prescribed by the Treasury Secretary.


While there are other details of the CARES Act related to retirement plans, I wanted to let you know as soon as possible about these particular provisions, in the event that you would like to consider making amendments to your plan and communicating them to your employees to help alleviate any financial hardships they are likely experiencing right now. I will be facilitating a conference call with you as soon as possible to talk in more detail about these provisions and determine our next steps during this unprecedented and very stressful time. I will be including key members of our retirement plan team on the call as applicable, including our plan recordkeeper [and TPA].


I hope that you, your family and your employees are healthy and are doing as well as can be expected. As a team, we will get through this together. I will be in touch with you soon regarding our conference call. In the meantime, don’t hesitate to reach out to me with any concerns or worries you may be having right now.



Appaiah Ballachanda