When you think about the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), you probably associate it with the stimulus checks sent to taxpayers and the loans available for businesses. However, the act includes other complex, far-reaching provisions, many of which impact Employee Benefit Plans (EBPs). For both employers and employees, understanding the EBP-related provisions is essential to planning for the future. LaPorte has summarized the major provisions below so you can see if one of these might apply to you as an employer, an employee, or a retiree.
Employer Contributions to Safe Harbor Plans
For the remainder of 2020, employers with safe harbor EBP plans may choose to stop making contributions. To do this, you have to amend the plan and notify the plan participants 30 days before stopping the contributions. Be aware that if you stop contributions, the plan may become subject to non-discrimination testing for 2020.
Defined Benefit Plans
For employers with a defined benefit plan, the CARES Act permits you to delay contributions until January 1, 2021. You will have to pay interest on the contributions between the original due date and the new January date.
Partial Plan Termination
Generally, if an employer has had to lay off 20% or more of EBP eligible participants, the participants who were affected become 100% vested. It is unclear yet whether this will affect organizations that laid employees off for the short term (eight weeks or fewer) until their state reopened.
EBP Participant Loans
Participants are able to take larger loans from their retirement accounts if those loans are coronavirus-related. Through September 28, 2020, the loan maximum has increased from a $50,000 maximum to the lesser of 100% of the participant’s vested account balance or $100,000. EBP loan repayments due between now and December 31, 2020 are suspended for a year.
EBP Hardship Withdrawals
The CARES Act waives the 10% withdrawal penalty for early withdrawals of up to $100,000 for this year for both qualified retirement plans and IRAs. If the withdrawal is repaid within three years, income tax on the withdrawal is also waived. Otherwise, you can report the income from the distribution on income taxes over three years instead of just one.
Required Minimum Distributions
The Required Minimum Distributions (RMDs) for IRAs and employer-sponsored retirement plans have been waived for 2020. This means that those who are 70 ½ or older do not have to take RMDs for 2020, including 2019 RMDs required to be paid by April 1, 2020.
In Conclusion
While the summaries above let you see if an individual provision might apply to you, the CARES Act has many conditions and complexities in it. As a member of the AICPA Employee Benefit Plan Audit Quality Center and with our professionals having attended multiple trainings related to the complexities of the CARES Act, we are uniquely qualified to help you navigate this complicated terrain. To determine how and if these changes affect you and your business, please contact your LaPorte advisor or your plan’s third-party administrator.