CARES Act – Retirement Plan Provisions with Updates as of July 2020

This information has been updated to reflect the recent guidance provided by the IRS in Notices 2020-50 and 2020-51, and supersedes our previous blog post on CARES Act Retirement Plan Provisions. 

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) to provide a broad economic stimulus and Coronavirus (COVID-19) relief for Americans. Below are the provisions impacting retirement plans and IRAs. These provisions were effective immediately once the President signed the bill, but for the most part, employers have a choice on whether they implement these changes with respect to their plans.


Coronavirus-Related Distributions (CRD)
This provision is discretionary, so employers do not need to allow these types of distributions. This relief allows participants to take a “Coronavirus-related distribution” between January 1, 2020 and December 30, 2020. This is not a hardship distribution, but a special distribution that gives access to retirement funds to individuals negatively impacted by the pandemic. This provision applies to defined benefit plans and defined contribution plans including: 401(k)/403(b)/governmental 457(b) plans, profit sharing, money purchase, stock bonus/ESOP plans, 403(a) annuities and IRAs. Below are the rules outlined in the CARES Act for these types of distributions.

Coronavirus-related distributions of up to $100,000 are available to a participant:

  1. Who is diagnosed with the virus SARS-CoV-2 or with Coronavirus disease 2019 (referred to collectively as COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act),
  2. Whose spouse or dependent is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act), or
  3. Who has experienced adverse financial consequences as a result of: a) the participant, their spouse or a member of their household being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19;  b) the participant, their spouse, or a member of their household being unable to work due to lack of childcare due to COVID-19; c) a business owned or operated by the participant, their spouse or a member of their household closing or reducing hours due to COVID-19; or d) the participant, their spouse or a member of their household having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19.

A dependent is someone the participant can claim as a dependent on their federal income tax return (as defined in section 152 of the Internal Revenue Code).  A member of an individual’s household is someone who shares the individual’s principal residence.

Qualified Individuals – a participant who meets one of the three requirements above is referred to as a “qualified individual. ” A qualified individual must certify they are eligible before taking a CRD and the employer may rely on the certification that the participant satisfies the conditions above for the distribution.

Coronavirus-related distributions not in excess of $100,000 are exempt from the 10% pre-59½ penalty. Any distribution amount in excess of $100,000 will be subject to the penalty. The $100,000 is an aggregate limit applied to the individual. Employers must apply the $100,000 aggregate limit with respect to their plans and plans of all members of the employer’s controlled group. The employer does not need to obtain information from the participant about Coronavirus-related distributions taken from other qualified plans or IRAs to determine the limit. States may or may not follow suit and exempt Coronavirus-related distributions from any applicable state penalties.

Unless a participant opts to include all Coronavirus-related distributions in gross income for the year of the distribution(s) (2020), Coronavirus-related distributions are spread out ratably over three years beginning with the year of the distribution(s) (2020, 2021 and 2022) for federal income tax purposes.  For example, if the participant takes a $30,000 CRD in 2020, they may elect to pay federal income taxes (and any applicable state income taxes) on $10,000 for 2020, 2021 and 2022.  Another option is to pay the taxes on $30,000 in 2020.  Once the participant makes the election on how to pay the taxes when they file their 2020 federal income tax return, they cannot change their mind.

If the plan sponsor allows, a Coronavirus-related distributions can be repaid to the plan in any amount up to the aggregate amount of the Coronavirus-related distribution(s) at any time during the 3-year period beginning on the day after the distribution.  The qualified individual may repay the CRD to the same plan where the CRD was taken, to another plan or to an IRA.  To be eligible to roll the CRD money into an eligible retirement plan, most plans require the participant to be an active employee to roll money into the plan. A plan sponsor may rely on the individual’s certification that the individual satisfies the conditions to be a qualified individual and the CRD is eligible for rollover treatment if repaid. A qualified individual may roll the money into an IRA, as well.  If the CRD was distributed from an IRA, the money must be returned to an IRA.

Qualified individuals must report CRDs and repayments of CRDs on IRS Form 8915-E (which is expected to be available before the end of 2020).  The IRS has provided detailed information in Notice 2020-50 (see Section 4, starts on page 11) on how to report the distributions and repayments and the options available to qualified individuals. For state reporting, participants should speak with their tax advisors.

Qualified individual participants who have an actual distribution as a result of an “offset” of the participant’s outstanding loan balance from the participant’s account, may treat the loan offset amount as a Coronavirus-related distribution (by providing a certification that the participant satisfies the above conditions). The loan offset amount plus all other amounts (e.g., cash) cannot exceed $100,000.  Loans defaulted when a participant is not eligible to take a distribution (deemed distribution of a loan) are not CRDs.

Coronavirus-related distributions are not subject to the 20% federal income tax withholding when the money is distributed from the plan, but are subject to 10% federal income tax withholding, which may be waived by the participant at the time of the distribution. The plan administrator does not need to provide the 402(f) special tax information notice.

If a plan sponsor does not decide to allow for CRDs from a retirement plan, a participant may still take a distribution from the plan (if they are eligible to take a distribution) and consider it a CRD when they file their personal tax returns.

For “pension plans” which are defined benefit plans and money purchase plans, to take a CRD, participants must meet the requirement to take an in-service distribution if they are still working for the employer.

CARES Act Loan Provisions

Increased loan limit – this provision is discretionary, so employers do not need to implement this change. The legislation includes higher loan limits for participants who are impacted by the Coronavirus for loans taken between March 27, 2020, and September 22, 2020. The plans which may allow these increased limits are defined benefit plans and defined contribution plans including: 401(k), 403(b), 457(b) governmental plans, profit sharing, money purchase, stock bonus/ESOPs.

Coronavirus-related loan maximum limits are increased to 100% of the qualified individual’s vested account balance/benefit, not to exceed $100,000 (usual maximum limit is the lesser of 50% of the participant’s vested account balance/benefit or $50,000.)

Qualified individuals eligible for these increased loan limits are the same individuals described above for Coronavirus-related distributions so they must meet one of the three requirements.

If a retirement plan limits the amount of loans a participant may take and the participant has already reached the loan limit, a CARES Act loan may not be provided. The plan sponsor could amend the plan’s loan policy to allow additional loans for these circumstances and the amendment would need to be done now.

Delay of 2020 loan payments and one-year loan extension – the CARES Act also includes a provision to delay any outstanding loan payments that are due from March 27, 2020 through December 31, 2020. In addition, one year may be added to the term of the loan.  Individuals eligible for the loan payment delay are the same qualified individuals described above for Coronavirus-related distributions (e.g., they must meet one of the three requirements mentioned above). Beginning in January 2021, regular loan payments must resume if the employee is still working for the company. The loan payments starting in January 2021 will be based on the loan balance as of the last payment made in 2020, plus any missed 2020 payments and accrued interest, amortized over the remaining term of the loan plus one year. IRS Notice 2020-50 provides for alternative methods to determine the new loan payments, however the method mentioned above is the easiest way to calculate the revised payments.

Required Minimum Distributions (RMD)
The IRS has clarified that this provision is discretionary.  Required minimum distributions may be waived for 2020 if the plan sponsor chooses to allow waivers. This rule applies to 2019 RMDs due by April 1, 2020 and to 2020 RMDs due by December 31, 2020 or April 1, 2021.  If the employer wishes to allow the waiver of RMD’s, plan sponsors may allow participants to elect whether to receive the RMD or not.  If a participant decides to take their 2020 RMD, the plan sponsor may allow the RMD to be directly rolled over into an IRA. RMDs are not subject to the 20% federal income tax withholding but are subject to the 10% voluntary withholding which may be waived by the participant.

If an individual already took an RMD in 2020, the IRS will allow them to roll over the RMD to the plan or to an IRA on or before August, 31, 2020, or if later, 60 days after the individual receives the RMD.  If an individual took an RMD from their IRA in 2020 and they wish to roll it back, they must roll it back into the distributing IRA.

Plans that this provision applies to are defined contribution plans including: 401(k), 403(b), 403(a), profit sharing plans, money purchase plans, governmental 457(b) plans and stock bonus/ESOP plans. This provision does not apply to defined benefit plans.

Amendments to the Plans
Plan amendments for these provisions must be signed on or before the last day of the plan year beginning on or after January 1, 2022. For example, a calendar year plan must sign an amendment by December 31, 2022. Governmental plans have an additional two years.  The amendments must reflect the CARES Act provisions applied in 2020, so it’s important to document decisions for future amendments.

Expanded Department of Labor (DOL) Authority

The CARES Act amends ERISA to expand the DOL’s authority to extend deadlines for certain notices and government filings up to one year due to the Department of Health and Human Services (HHS) declaring a public health emergency. HHS declared a public health emergency on January 31, 2020.


Plan sponsors and their service providers have been administering the CARES Act provisions without IRS instruction, so the two Notices are very welcome guidance.  If the IRS provides additional guidance regarding implementation of these CARES Act provisions, TRI-AD will assess any future guidance and make any necessary changes.  TRI-AD is actively deploying these additional changes based on our understanding and interpretation of the law as it is written in the CARES Act and the IRS Notices recently published. TRI-AD is integrating these new IRS Notice rules into our systems and processes to accommodate your employees. Please contact your TRI-AD Client Service Manager if you have any questions.

TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state or local; and/or its application to the clients’ business activities.