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What Should Plan Fiduciaries Know About the CARES Act?

What Should Plan Fiduciaries Know About the CARES Act?

April 08, 2020
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So Much Retirement Plan Legislation

The last 6 months have been full of legislation that impacts retirement plans in general. At the end of 2019, the SECURE act was passed. On March 27th of this year, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by President Donald J. Trump. With this new legislation, what should you know as a plan sponsor? We will touch base on a few of these points, but you should talk to your TPA or other trusted plan contacts to get specific advice on your own plan. If you are looking for advice on a personal level, reach out to your tax advisor. 



Plan Amendment Deadlines

Plans can immediately operate in accordance with the CARES Act. They must make the plan amendments “on or before the last day of the first plan year beginning on or after January 1, 2020” (Congress.Gov, 2020). Often changes allow for a longer time-frame to adopt. Allowing plans to operate in accordance with the CARES Act with the ability to make amendments later allows plans to act quickly and not be slowed down waiting for plan amendments. 



Defined benefit plans can delay 2020 contributions until Jan 1, 2021. This gives them more time for pension plans to catch up on contributions later. There will, however, be interest that applies. There are not many defined benefit plans these days, but for those who have them, this will allow added flexibility. If you think this applies, you should talk to your Third-Party administrator. 


Participants and Individuals

Qualified Individuals

There are “special rules” relating to retirement accounts in the language of the CARES Act. “Coronavirus-related distributions” must meet the following:

  • Being diagnosed with SARS-CoV-2 (COVID-19) by an approved test
  • Those with a spouse or dependent who is diagnosed as stated above
  • Those experiencing “adverse financial consequences” for one of several listed reasons relating to the virus.

Early withdrawals

Individuals will be able to withdraw up to $100,000 aggregate from their retirement accounts without a 10% tax penalty. They will have the option of repaying that distribution within 3 years of taking it. These distributions will still be taxable but can be disseminated over 3 years. This added liquidity can help participants take care of immediate needs during this unique time in the world. 


401k Loans

Loan limitations will be increased up to 100% of the vested account balance or up to $100,000. This is up from the prior limits. Prior to this legislation, the limit was the higher 50% of vested balances of $50,000. Once again, this stresses participant liquidity and options. 



2020 RMDs are suspended for 2020. This will only apply to employees who are age 72 or older with the exception of those who turned 70 1/2 before Jan 1, 2020. 


This Just Skims the Surface

There is a lot more to this legislation. There are changes to paid leave, unemployment assistance, and student loan programs to name a few. I hope this post helps you take away a few bullet points so you can take a deeper dive with those professionals you work within your retirement plan.  


Congress.Gov. (2020, March 21). S.3548 - CARES Act. Retrieved from Congress.Gov:

Photo Credit

This illustration, created at the Centers for Disease Control and Prevention (CDC), reveals ultrastructural morphology exhibited by coronaviruses. Note the spikes that adorn the outer surface of the virus, which impart the look of a corona surrounding the virion, when viewed electron microscopically. A novel coronavirus, named Severe Acute Respiratory Syndrome coronavirus 2 (SARS-CoV-2), was identified as the cause of an outbreak of respiratory illness first detected in Wuhan, China in 2019. The illness caused by this virus has been named coronavirus disease 2019 (COVID-19).