CARES Act: Retirement Relief Implications for 401(k) Sponsor Plans

In response to the Coronavirus pandemic, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) on March 27, 2020. The CARES Act provides relief to many Americans affected by the Coronavirus, and includes retirement plan provisions. In this time of uncertainty, employers should take note of this option and how it may provide relief in the form of amended provisions for their retirement plan participants.

If your company offers a TriNet-sponsored 401(k) plan, the plan will add the CARES Act retirement relief. The new provisions will be available to your eligible 401(k) participants starting on April 16, 2020. They can contact the provider directly for more information.

Participant Options

The CARES Act includes provisions that may provide accommodations to participants affected by the Coronavirus pandemic. A plan sponsor can elect to amend their plan to allow a self-certifying participant who has been affected by the Coronavirus to request a distribution up to $100,000 from their retirement account. These distributions are not subject to the 10 percent early distribution penalty applicable to distributions made before age 59-and-a-half and may be repaid. In addition, participants have the option to pay income taxes over a three-year period.

The CARES Act defines an eligible participant for a Coronavirus-Related-in-Service Distribution (CRD) as:

1. Someone who is diagnosed with COVID-19
2. Someone whose spouse or dependent is diagnosed with COVID-19
3. Someone 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 childcare, closing or reduced hours of a business owned and operated by the individual
4. Or other factors determined by the Secretary of the Treasury

A second optional accommodation for eligible participants is a temporary increase to the maximum loan limit as well as an extended repayment period for any plan loan, whether or not coronavirus related. The maximum permissible loan is temporarily increased for six months to the lesser of:

1. $100,000 (versus the current $50,000) reduced by the amount of any outstanding loan, or
2. The participant’s account balance (versus the current 50 percent of the participant’s account balance)

Additionally, an eligible participant with loan repayments due between March 27, 2020 and December 31, 2020 may elect to have their repayments delayed for one year. After the end of the one-year suspension period the loan will be re-amortized.

Company Contributions

When evaluating whether to add the CARES Act participant retirement relief, some companies are also evaluating their budget for company 401(k) contributions. Employers may be able to adjust the company matching or non-matching contributions to help ease financial burdens. Company contributions to a retirement plan generally fall into three categories and are outlined in the plan document:

1. Discretionary contributions: Employers will likely have the option to temporarily stop making these contributions without amending the plan, though notifying participants that you are suspending the match will help them understand the changes
2. Fixed contributions: Employers can amend the plan to either make the match discretionary or to suspend the match temporarily. Under this arrangement, you may need to make the matching contribution through the date of the amendment
3. Safe harbor contributions: Suspending a safe harbor contribution can be done under limited circumstances, including if the employer is operating at an economic loss or if certain language was included that was provided to participants before the start of the plan year. A notice to participants would be required

Employers should also pay special attention to any employment contracts, such as collective bargaining agreements and employment agreements that may stipulate that certain employer contributions are required, and also how compensation is defined in the plan document.

Employers should contact their administrator or legal counsel to see if they can adjust the company matching contribution. Customers who participate in a TriNet sponsored retirement plan can contact 401kService@TriNet.com for assistance navigating these options.

Required Minimum Distributions

Finally, required minimum distributions (RMDs) are waived for calendar year 2020, including those who turned age 70-and-a-half in 2019 with an RMD beginning date of April 1, 2020. A participant may still elect to take a distribution even though RMD requirements are waived.

Visit the TriNet COVID-19 Preparedness Center for critical and up-to-date information as well as the impact of changing regulations on small and medium-size businesses. We will continue to monitor the COVID-19 situation and provide updates as necessary.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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