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Hardship Distributions: Eliminates the 10% early withdrawal penalty tax on early 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; or
  • other factors as determined by the Treasury Secretary.


The legislation also permits those individuals to pay tax on the income from the distribution ratably over a three year period and allows individuals to repay that amount into the plan over the next three years (subject to further guidance). Those repayments would not be subject to the retirement plan contribution limits.


Plan Loans: Increases the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan.


Participants with an outstanding loan from their plan with a repayment due from the date of enactment of the CARES Act through Dec. 31, 2020, can delay their loan repayment(s) for up to one year.


Plan Amendments: Plan Sponsors may adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans. The plan will have to be amended on or before the last day of the first plan year beginning on or after Jan. 1, 2022, or later if prescribed by the Treasury Secretary.


Temporary Waiver of Required Minimum Distribution(RMD) Rules: Waives RMDs for calendar year 2020 for Defined Contribution plans, including 401(k), 403(b), 457(b) and IRA plans, allowing individuals to keep funds in their retirement plans. The legislation also includes special rules regarding the waiver period to, in essence, hold harmless those individuals (and plans) who took advantage of the RMD waiver for 2020.


Single-employer DB Plan Funding Rules: Provides single-employer defined benefit plan funding relief by giving companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until Jan. 1, 2021. At that time, contributions due earlier would be due with interest. The provision also provides that a plan’s status for benefit restrictions as of Dec. 31, 2019 will apply throughout 2020, such that a plan sponsor may elect to treat the plan’s adjusted funding target attainment percentage for the last plan year ending before Jan. 1, 2020, as the adjusted funding target attainment percentage for plan years which include calendar year 2020.


Expansion of Department of Labor (DOL) Authority to Postpone Certain Deadlines: Provides the DOL with expanded authority to postpone certain deadlines under ERISA. In general, the legislation increases the circumstances to go beyond a terroristic or military action to also include a public health emergency declared by the Secretary of Health and Human Services under the Public Health Service Act.


We have covered several key topics that are addressed in the act. If you are interested in adopting these new CARES Act rules and amending your plan, please contact your Midland Retirement Plan Services relationship manager.