COVID-19 Emergency Response Initiatives
In response to the COVID-19 pandemic, the American Retirement Association has been actively engaged with Capitol Hill and the appropriate Regulatory Agencies to ask for various forms of retirement plan relief for small businesses. The Department of Labor, Department of Treasury, and the Internal Revenue Service have broad authority over retirement plan administration and collectively these Agencies have been very responsive in times of national emergencies. We encourage Congress to follow up with the Agencies on these requests for retirement plan relief. Please feel free to contact me with questions on any of the particulars of our requests.
Below is a list of our correspondence with those Agencies and our relief priorities:
March 24, 2020 Letter to the Department of Treasury –
- The American Retirement Association’s top regulatory priority is to modify the 401(k) Safe Harbor Plan rules until December 31, 2020, to allow employers to immediately reduce or cease safe harbor employer contributions. This modification would remove the current condition requiring a 30-day notice period to employees when the employer elects to reduce or eliminate contributions. Similar relief was provided during the 2008 financial crisis. No action to date has been taken on this request.
- Partial Plan Termination relief if employees rehired by 12/31/2020 = no action to date
- Form 5498 filing due date extension to 8/31/2020 (from 5/31/2020) = no action to date
- Any changes to 2020 Forms 1099-R and 5498 be optional = no action to date
March 16, 2020 Letter to the Departments of Labor and Treasury –
- Form 5500 filing due date extension to 10/15/2020 (from 7/31/2020) = no action to date
- Test correction due date extension to 6/15/2020 (from 3/15/2020) = no action to date
- Form 1099-R filing due date to 6/30/2020 (from 3/31/2020) = no action to date
- Preapproved Defined Benefit plan restatement due date extension to 8/31/2020 (from 4/30/2020) = IRS extended the due date until 7/31/2020
- 403(b) plan Remedial Amendment Period due date extension to 3/31/2021 (from 3/31/2020) = IRS extended the due date until 6/30/2020
March 30, 2020 Letter to the Department of Labor –
- General request for a 90- to 120-day extension of certain ERISA notice and disclosure requirements in accordance with the Department’s new grant of authority under section 3607 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
COVID-19 Defined Contribution Plan Funding Relief Legislative Proposal
The American Retirement Association strongly supports federal legislation to provide immediate defined contribution plan funding relief. A recent survey of professionals who work with these plans, conducted by the American Retirement Association, found that without this relief more than 200,000 retirement plans are at serious risk for termination. Below are the key components of the proposal:
- plan sponsors with less than 500 participants could waive any employer contributions that have not yet been made to satisfy their 2019 obligations;
- all plan sponsors with a defined contribution plan, on a prospective basis, could suspend their required employer contributions to their plan for 2020;
- if the plan sponsor opts for this relief, the more highly compensated employees in the organization, defined under the tax code as key employees, would be prohibited from making contributions to the plan during the relief period and;
- the plan sponsor would be prohibited from making contributions into other deferred compensation plans, like a non-qualified deferred compensation (NQDC) plan on behalf of key employees.
Coronavirus Aid, Relief, and Economic Security (CARES) Act
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) that includes retirement relief provisions supported by the American Retirement Association. Below is a quick description of those provisions.
Coronavirus-related Distribution Rules (Section 2202)
Qualifying individuals now may, if the plan allows, take a coronavirus-related distribution up to $100,000 between January 1, 2020 and December 31, 2020. These distributions are not subject to the 10% additional income tax penalty on premature retirement plan distributions and the 20% withholding rule does not apply. These distributions are subject to ordinary income tax however, although the tax can be paid ratably over a three-year period. Individuals are also allowed to repay any amount distributed back into a retirement savings account over a three-year period and recover any tax paid on the distribution.
Coronavirus-related Loan Rules (Section 2202)
Qualifying individuals now may, if the plan allows, take a plan loan up to the lesser of $100,000 or 100% of the vested retirement account balance. Individuals have until September 23, 2020, to take such a loan. For qualifying individuals with a loan balance (new or outstanding), scheduled payments through December 31, 2020 can be delayed for up to one year – although interest does accrue on the loan amount during the suspension period.
Waiver of Required Minimum Distributions (Section 2203)
Taxpayers with individual account plans and/or IRAs can waive any required minimum distributions from those accounts for the 2020 calendar year. There is also a limited 2019 required minimum distribution waiver for individuals that turned 70 ½ in 2019 and waited to take those distributions until the 2020 calendar year.
Department of Labor Authority to Postpone ERISA Deadlines (Section 3607)
The Department of Labor now has statutory authority under Section 518 of the Employee Retirement Income Security Act (ERISA) to delay any reporting or disclosure requirements up to one year after a public health emergency is declared by the Secretary of the Department of Health and Human Services.
Single Employer Defined Benefit Plan Funding Relief (Section 3608)
The deadline for any contribution due during the 2020 calendar year to a single employer defined benefit or money purchase plan is now delayed until January 1, 2021. Plan sponsors must pay interest on the delayed contributions from the original due date to the payment date using the effective interest rate for the plan for the plan year that includes the payment date. The provision also provides some flexibility with respect to the election of a plan funding target to avoid lump sum payment and benefit accrual restrictions.
For Frequently Asked Questions (FAQs) on certain employee benefit provisions of the CARES Act, please click here.
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