In response to COVID-19, Congress passed and the President has signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
In addition to direct financial relief for individuals and businesses, the CARES Act provides significant provisions to help 401(k) plan sponsors and participants.
The primary accommodation for plan sponsors allows for the suspension of Safe Harbor contributions for 2020 if the employer meets either of the following:
- The business is operating at a loss; or,
- The plan’s Safe Harbor notice included a “Maybe Not” clause, notifying participants that the Safe Harbor contribution might be suspended during the year.
Participants must be given 30-days advance notice of the suspended contributions and the plan becomes subject to ADP testing for the year.
For plan participants, accommodations include the following:
- Waiver of the 10% premature distribution tax for distributions up to $100k for individuals who have been diagnosed with COVID-19 or whose immediate family member has been diagnosed with the virus. The waiver also applies to anyone who has suffered financially due to the pandemic.
- Plan loans taken in the next 180 days will be allowed to take up to 100% of a participant’s vested account, not to exceed $100k.
- Required Minimum Distributions (RMDs) due to be paid in 2020 are waived.
This brief summary touches on the primary impacts of the CARES Act but is not intended to be comprehensive. I encourage you to consult your legal counsel for more specific guidance on how this may impact you and your participants.
Please let me know how we can be of service during these challenging times.