CARES Act – Retirement Plan Provisions

NOTE: Additional IRS guidance has been released. For the most up-to-date guidance on CARES Act distributions, loans, and RMDs, please see our July 16, 2020 blog post.

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 are effective immediately, 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 implement these changes. The legislation includes relief for participants who need to access their retirement plan funds due to COVID-19. This relief applies to “coronavirus-related distributions” between January 1, 2020, and December 30, 2020. 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:
    • who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention,
    • whose spouse or dependent (as defined in section 152 of the Internal Revenue Code) is diagnosed with such virus or disease by such a test, OR
    • who experiences adverse financial consequences as of a result of being quarantined, being furloughed or laid off or having work hours reduced to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury. This requirement only applies to the participant and does not apply to a spouse or dependent. For example, if the participant is still working and hours have not been reduced, but the spouse has been laid off, this would not qualify for a CRD unless the participant meets the first two requirements (the participant or spouse/dependents have the virus). Also, please note that a reduction in a participant’s wages does not qualify either.

An employer may rely on the employee’s certification that the employee satisfies the conditions above for the distribution.

  • Coronavirus-related distributions not in excess of $100,000 are exempt from the 10% pre-59 ½ 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.
  • 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). In the case of a terminated employee who treats the plan loan offset amount and any other amounts distributed to the employee as a result of termination as a coronavirus-related distribution, the plan loan offset amount plus all other amounts (e.g., cash) cannot exceed $100,000.
  • Unless a participant opts to include all coronavirus-related distributions in gross income for the year of the distribution(s) (i.e., 2020), coronavirus-related distributions are spread out ratably over three years beginning with the year of the distribution(s) (i.e,. 2020) for federal income tax purposes.
  • Coronavirus-related distributions are not subject to the 20% federal tax withholding when the money is distributed from the plan, and the plan administrator does not need to provide the 402(f) special tax information notice. The participant must pay ordinary income taxes ratably over a 3-year period, unless they elect to pay all applicable ordinary income tax for the year of the distribution(s) (2020), but the plan is not required to withhold federal income tax.
  • Coronavirus-related distributions can be repaid (in any amount up to the aggregate amount of the coronavirus-related distribution(s)) to the plan (or any other eligible retirement plan or IRA) at any time during the 3-year period beginning on the day after the distribution as long as the participant remains an active employee under the eligible retirement plan (or IRA owner) who is eligible to roll over money into the plan (or IRA) at the time of repayment. The repayment is treated as a direct trustee-to-trustee transfer made within 60 days of the distribution.
  • For “pension plans” which are defined benefit plans and money purchase plans, it appears that participants must meet the requirement to take an in-service distribution if they are still working for the employer. Additional guidance is needed from the IRS on this matter.

Coronavirus-Related Loan Provisions

  • Increased loan limit – this provision is discretionary so employers do not need to implement these changes. The legislation includes higher loan limits for participants who are impacted by the coronavirus for loans taken between March 27, 2020, and September 23, 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, not to exceed $100,000.
    • Qualified individuals eligible for these increased loan limits are the same individuals described above for coronavirus-related distributions.

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.

  • One year delay for 2020 loan payments – the CARES Act also includes a provision to delay any outstanding loan repayments held by a qualified individual that are due from March 27, 2020, through December 31, 2020, by one year. Individuals eligible for the one-year due date extension are the same qualified individuals described above for coronavirus-related distributions. After the one-year delay, subsequent repayments will be adjusted to add any interest accruing during the delay. Keep in mind, only the 2020 loan payments are delayed so beginning in January, 2021, regular loan payments must resume if the employee is still working for the company.

Required Minimum Distributions (RMD)
This provision is not discretionary. Required minimum distributions are waived for 2020. This applies to 2019 RMDs due by April 1, 2020 and to 2020 RMDs due by December 31, 2020. If a participant decides to take their 2020 RMD, the distribution will not be considered an eligible rollover distribution for direct rollover purposes. Once taken, however, the participant may roll the RMD into another qualified plan or IRA. If any part of the RMD includes Roth money, the Roth portion may only be rolled into a Roth 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.

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. We may see the DOL extend the deadlines for Form 5500 and required participant disclosures.


We expect the IRS to provide additional guidance regarding implementation of these new CARES Act provisions as soon as feasible, but we realize that employers will want to assist their employees as soon as possible, likely before such IRS guidance is available, rather than wait for any such guidance to be issued.

TRI-AD is actively deploying these changes as requested by plan sponsors based on our understanding and interpretation of the law as it is written in the CARES Act. There is necessarily some level of risk for plan sponsors in making the changes prior to the issuance of applicable IRS guidance, in the event any future IRS guidance conflicts with our understanding and interpretation of the CARES Act provisions. If and when applicable IRS guidance is published, we will expeditiously analyze the extent to which such guidance impacts the changes made to your plans (if at all) and if necessary, change our processes/systems at that time and provide you with any applicable recommended next steps.

TRI-AD is integrating these new 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.