COVID-19 Regulatory Update | The CARES Act

North Pier Search Consulting | Insights > COVID-19 > COVID-19 Regulatory Update | The CARES Act

By: Brant Griffin 

The past few weeks have been among the most tumultuous and emotional we may see in our lifetimes. The acute impact of the COVID-19 outbreak has been felt by individuals, families, organizations, and communities across the United States and around the world.

The response to this crisis has been extraordinary. Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, is part of a $2 trillion stimulus package that includes direct payments to taxpayers, unemployment benefits, and assistance for businesses in distress. One intent of this legislation is to relax rules and diminish the tax consequences of distributions from retirement plans for “Coronavirus-related distributions”.

Identified below are the changes that may impact retirement plans and Individual Retirement Accounts.


The CARES Act allows for a new Coronavirus-related distribution type made between January 1, 2020 and December 31, 2020 from an employer-sponsored plan such as a 401(k), 403(b), or governmental 457(b) retirement plan or IRA. The act’s provisions permit a withdrawal of up to $100,000 per participant to be exempt from the 10% premature distribution penalty that normally applies to plan distributions for those under the age of 59½.

The distribution must be made to a participant, their spouse or dependent diagnosed by a test approved by the Centers for Disease Control and Prevention (CDC) with coronavirus or an individual who experiences adverse financial consequences as a result of the coronavirus.

  • Coronavirus-related distributions feature additional financial support, including: Participants may be permitted to recontribute the amount of the distribution in one or more installments within a 3-year period, without regard to plan contribution limits.
  • Income attributable to the distribution is spread out over a three-year period for tax purposes.

The 20% federal tax withholding normally applied to qualified plan distributions, and a special tax notice applicable to plan distributions, are not required for these special distributions. Additionally, plan administrators of an eligible retirement plan may rely on an employee’s self-certification that the employee has satisfied the conditions required by the law.

Plan Loans

The CARES Act permits retirement plans to allow qualified individuals to increase their plan loan amounts up to the lesser of 100% of their vested account balance or $100,000 for the 180 days following the date of enactment of the law (March 27, 2020). Additionally, payments on existing plan loans due from March 27, 2020 through December 31, 2020 are delayed for one year. When the loan payments resume, the loan repayment schedule will be extended by the length of time of the payment deferment. Interest continues to accrue during the delay period.

Participants must meet the same requirements identified for Coronavirus-related distributions to be eligible for the plan loans permitted under the new law.

Plans are not required to implement plan loans or the expanded loan terms authorized under the CARES Act.

Required Minimum Distributions

The CARES Act waives RMDs for defined contribution plans and IRAs for the remainder of 2020. No waiver is available for defined benefit (DB) plans.

During these turbulent times, North Pier is committed to helping our plan sponsor clients understand any new rules and make informed decisions. As always, please let us know if you have any questions.

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