The U.S. Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides relief to individuals facing hardship due to the COVID-19 crisis by permitting participants in qualified retirement plans to take special distributions and/or plan loans to help ease the economic fallout of the pandemic. On June 19, 2020, the Internal Revenue Service (IRS) issued Notice 2020-50, which provides guidance to both plan sponsors and plan participants regarding implementing some of the CARES Act’s retirement plan provisions. This Sidley Update provides an overview of Notice 2020-50, with particular focus on the sections affecting plan sponsors.
Summary of Relief Enacted by the CARES Act
The CARES Act permits “qualified individuals” to treat distributions from a qualified retirement plan as “coronavirus-related distributions” entitled to more favorable tax treatment. For example, “coronavirus-related distributions” are not subject to the 10 percent penalty generally applicable to early withdrawals or the 20 percent mandatory tax withholding applied to retirement plan distributions.
The CARES Act also permits plan sponsors to offer qualified individuals plan loans from an employer-sponsored retirement plan in an amount not exceeding the lesser of $100,000 or 100 percent of the individual’s vested account balance. This rule essentially doubles the amount that a qualified individual may request under the normal plan loan rules. In addition, plan sponsors are permitted to delay, for one year, any qualified individual’s loan repayment obligation occurring during the period beginning after the enactment of the CARES Act and ending December 31, 2020.
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