Confidential CARES Act
C E A R S Coronavirus and Economic Aid Relief Security Signed into law by the President on March 27, 2020 Purpose Help Americans access retirement money and provide economic relief New distribution type Higher loan limits Relief For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 2
Coronavirus-Related Distribution (CRD) Waiver of 10% penalty on early withdrawals for taken between January 1, 2020 and December 31, 2020 (so can be retroactively applied to amounts up to distributions taken prior to enactment of the Act) $100,000 from a retirement plan or IRA only available to a qualified individual CRDs (see “qualified individual” below) Individuals may elect to repay the CRD back to the plan, tax-free, over the three years from the date of Individuals may elect to the withdrawal (not limited by plan limits). May be pay the tax on a CRD repaid back into the plan making allowing the ratably over a three year period; and withdrawal, another qualified plan or an IRA that accepts rollovers. Plan sponsor has discretion whether to offer this design, with modifications (if so desired and their service provider can accommodate), in their qualified plan For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 3
Participant Loans Loan Limit Increase : Loan Repayment Delay: For participant loans taken • Qualified individuals (see “qualified individual” below) with from plans between outstanding loans; enactment of the Act and • Repayment due from the date of enactment of the Act through September 22, 2020, loan December 31, 2020; limits may be increased for • May delay loan repayments for up to one year qualified individuals (see • Plan can choose to extend the term of the loan for up to a year as “qualified individual” below) well to the lesser of: • Allows participants to avoid a default->deemed distribution->taxable event • $100,000; or • Extending loan term allows participants to avoid financial hardship • 100% of their vested when they do resume repayment by keeping their repayment account balance. amount reasonably similar to the payment amount prior to the suspension • Continue to accrue interest during the period of the suspension of repayments. Plan sponsor has discretion whether to implement these design elements, with modifications (if so desired and their service provider can accommodate), in their qualified plan For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 4
Qualified Individual • Is diagnosed with COVID-19; Eligibility for the • Whose spouse, or dependent (as defined by the CRD, the higher loan Internal Revenue Code) is diagnosed with COVID-19; limit, and the loan • Who experiences adverse financial consequences repayment delay are due to furlough, quarantine, layoff, reduction in hours, conditioned upon a inability to work due to lack of child care due to participant meeting COVID-19, or closing of business/reduction of hours one of the following by individual due to COVID-19; or criteria: • Factors determined by the Secretary of the Treasury Importantly, the Act does not require the plan sponsor to verify whether an individual qualifies for the COVID-19 adjusted loan limits or the CRD. The plan sponsor may rely upon a participant’s certification for eligibility. For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 5
Required Minimum Distributions The Act waives RMD payments for 2020. Includes RMD attributable to 2019 which was not paid by January 1, 2020; Includes RMD if made prior to enactment of the Act in 2020; but Does not include RMD distributions that were made in 2019. For RMDs that were made prior to enactment of the Act in 2020 the participant may defer taxes and roll it back to the plan from which it was made or roll it to another qualified plan or IRA which accepts rollovers. Additional guidance regarding any potential impact to the 60-day rollover period is expected from the IRS. For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 6
Defined Benefit Plans Relief • Plans may delay contributions due in calendar year 2020 (including all quarterly contributions) • Due date: January 1, 2021 • The new January 1, 2021 due date applies for all quarterly contributions (they would no longer be separately due) • Delayed due date accompanied by interest on the delayed contributions from the original due date(s) at the effective rate for the plan year that includes the date of payment. • Plan sponsors should expect leveraging delay should lead to higher contributions in 2021. • Plan sponsors have option to use plan’s funded status for the last plan year ending before Jan. 1, 2020, for purposes of determining the funding-based benefit limitations for plan years that include calendar year 2020. • This provision enables plan sponsors to avoid restrictions on future benefit accruals and on distributions in optional forms under Code Section 436 where a plan has a decline in funding status resulting from the market downturn tied to COVID-19. For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 7
Defined Benefit Plans Relief PBGC Offers Relief: • Extends deadlines that fall within April 1, 2020 to July 15, 2020 window for: • PBGC Premiums • ERISA Section 4010 • Now all due July 15, 2020 • Not apply to particularly important or time-sensitive filings on PBGC “Exceptions List” on PBGC’s Disaster Relief webpage • Indicates high risk of harm to pension plan participants • Indicates high risk of harm to the insurance program For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 8
Notification? CARES Act does not mandate notice • Plan sponsor choosing not to provide notice will of CARES Act provisions to plan not face civil penalties participants Amendments to plan (end of 2022) require a summary of material • Trailing requirement modification (SMM) Practical consideration: Changing • Need not rise to level of formal elements of plan that significantly disclosures/notices changes participants’ rights under the plan seems an appropriate time to • Strong public relations move in engendering provide some level goodwill with employees of communication For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 9
DOL Deadlines & Other Relief CARES Act empowers Department of Labor to extend deadlines for notices and reporting – TBD • Notice, Disclosure, Document deadlines • Subject to duration limit of ERISA section 518, no ERISA violation for those that must be furnished between March 1, 2020 and 60 days after the announced end of the COVID-19 National Emergency if: • Responsible plan and fiduciary act in good faith; and • Furnish as soon as administratively practicable under the circumstances • May rely on electronic alternative means if reasonably believes participants/beneficiaries have effective access (email, text messages, continuous access websites) For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 10
DOL Deadlines & Other Relief • Failure to follow distribution or loan procedures • DOL not treat as failure if: • Failure solely due to COVID-19; • Plan administrator makes good-faith diligent effort under circumstances to comply; and • Administrator makes reasonable attempt to correct deficiencies as soon as administratively practicable • Relief not include missing spousal consent or other statutory or regulatory requirements • Loans and prohibited transactions • IRS and DOL will not treat persons violating adequate security and reasonably equivalent basis requirements of ERISA as prohibited transaction if loan made pursuant to CARES Act For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 11
DOL Deadlines & Other Relief • Untimely remittance of loan repayments or contributions • DOL not take enforcement action if: • Temporary delay in forwarding payments; • Employers act reasonably, prudently, and in interest of employees; and • Comply as soon as administratively practicable under circumstances • Blackout notices • Generally plans are required to provide 30 days prior notice • Exception to advance notice when inability to do so due to events “beyond reasonable control of the administrator and a fiduciary so determines in writing” • DOL not require the fiduciary to do so in writing as “ . . . pandemics are by definition beyond a plan administrator’s control.” For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 12
DOL Deadlines & Other Relief • DOL general fiduciary compliance guidance • Fiduciaries should act reasonably, prudently, and interest of covered workers and their families • Fiduciaries should make reasonable accommodations to prevent loss of benefits or undue delay • Fiduciaries should attempt to minimize possibility of individuals losing benefits due to failure to comply with pre-established timeframes • DOL approach to enforcement to emphasize: • Compliance assistance • Grace periods • Other relief where appropriate For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20 13
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