As the conversations surrounding CARES Act provisions continue to evolve, we are constantly updating our FAQs to provide the most in-depth and up to date information. This week, as a result of a lot of hands-on work with our clients to implement these provisions, we have nearly doubled the information available. We've pulled a question from a few of the new sections on our page to highlight below, but for the full update visit our FAQ page.
General CARES Act Info:
There are differences of opinion on that. For starters, even if you have to make an affirmative election, formal plan amendments are not required until the end of 2022; however, we are recommending some sort of current documentation so that there are no questions down the road. We discuss that in more detail below.
Beyond the documentation question, the answer is a little bit of both. The reason is that, in general, most of the provisions in the CARES Act have two components – access via loans and distributions and the tax treatment of any amounts a participant receives. Plans generally have the option of whether or not they want to expand access, but once available, the tax-related relief applies to all participants who qualify. Not to sound like a broken record, but we address this for each provision throughout this FAQ.
A number of recordkeepers and TPAs are already reaching out to plan sponsors on their decision regarding the optional provisions of the CARES Act. While some are waiting for instructions from plan sponsors, others have made some assumptions on how to proceed. The National Association of Plan Advisors has compiled a list of service providers and their defaults. It is available here.
Participant Loans | Increased Limits:
Other than the overall limit, the terms of your plan still apply here. That means a participant who already has a loan would not be able to take out a second loan unless you amend your plan to remove that “one at a time” limitation. Since that is not a change unique to the CARES Act, such an amendment would be required currently (i.e. by the end of the 2020 plan year) and cannot wait until 2022. Similarly, if your plan does not allow a participant to refinance an existing loan to take out more money, you would need to amend your plan to allow for that in this context.
Participant Loans | Postponement of Payments:
Yes, for affected participants, the CARES Act delays the deadline for one year for any loan payments (on new or existing loans) that would otherwise be due between March 27, 2020, and December 31, 2020. Interest continues to accrue on those payments at the existing interest rate, but the 5-year maximum repayment term for non-residential loans can be extended by the length of the postponement.
We have seen a number of conflicting interpretations here. We are not experts in the SBA in general or the PPP more specifically. We are basing our interpretation on Q&A number 7 on the FAQ posted to the Treasury Department’s website. If you have any questions about your specific situation, we encourage you to check with your attorney or CPA.
Yes. The PTO provided to employees under the FFCRA is compensation just like any other salary or hourly pay the employees receive, so it is treated just like regular pay for purposes of the retirement plan. That means an employee who has made an election to defer into the 401(k) should have deferrals withheld from that PTO unless/until he or she makes a contrary election. The PTO amounts are also included in compensation when calculating company contributions such as safe harbor contributions, company match, or profit sharing.
We will continue to address your questions related to the coronavirus and The CARES Act each week. In the meantime, the DWC team is here to answer any questions you might have, not only about the Act but also how the current environment may impact your plan. If you are not sure who at DWC to contact, please reach out to one of the following:
- Doug Hoefer at 651.204.2600 ext. 101 or firstname.lastname@example.org
- Lori Reay at 651.204.2600 ext. 126 or email@example.com