Plan sponsors that implemented some or all of the retirement plan provisions from the CARES Act have some important dates on the horizon, as most of those relief provisions expire at the end of this year. To help you plan accordingly, we’ve provided a brief explanation of actions generally required for each of the provisions. Once you’ve had the chance to review, we would be happy to discuss each of these and how they may apply to your Plan.
Coronavirus-Related Distributions (CRDs): The last day for plan participants to take a CRD is December 30, 2020. Barring further action by Congress (which appears unlikely at this point), participants will no longer be able to take CRDs after that date and will, once again, be limited to the in-service withdrawals and post-termination distributions available within your plan document.
Taxes and Repayment of CRDs: Even though no new CRDs are permitted after December 30, participants will still have up to three years to repay CRDs they’ve already taken in order to avoid paying income tax on those amounts. Those who do not repay are able to spread the CRD amount evenly over three years for tax purposes. Going forward, any new non-CRDs taken will be subject to the “regular” requirements for tax withholding, early withdrawal penalties, and more limited rollover options that previously applied to various in-service withdrawals.
Postponement of Participant Loan Repayments: Participants who elected to suspend loan payments during 2020 must resume loan payments in January 2021. These loans must be reamortized to reflect the interest accrued during the suspension period and loan payments adjusted accordingly. The CARES Act provides the option that participants may extend the original maturity date of these loans by up to one year as part of this reamortization. In addition to updating your internal payroll withholdings, it is also important to coordinate with your plan’s recordkeeper and to notify the plan participant as well. While payments must resume with the first paycheck in January 2021, there is some flexibility as to the timing for reamortizing the loans – the first paycheck in 2021 or one year from the date of the first postponed loan payment.
Increased Loan Limits: The maximum loan limit of 100% of a participant’s vested balance or $100,000 (whichever is less) reverted to pre-CARES Act limits of the lessor of 50% of a participant’s vested balance or $50,000 as of September 22, 2020. While no immediate action is required, it is important to keep this reduced limit in mind as participants make inquiries or requests for new loans in 2021.
Required Minimum Distribution (RMD) Waiver: The CARES Act provided the opportunity for plan sponsors to waive RMDs for the 2020 tax year. This waiver included participants taking their first RMD for the 2020 tax year who were not required to take the withdrawal until April 1, 2021. At this time, there have been no further waivers, and RMDs related to the 2021 tax year should be reinstated so that they occur before December 31, 2021 or April 1, 2022, as applicable.
We know, it has been one busy year. As you begin preparations for 2021 and compile your 2020 census information, don’t hesitate to reach out to your team at DWC for assistance! We’re here to help you navigate the changes above and any other questions you may have.
