With the global pandemic caused by COVID-19 causing vast uncertainties in the economy, employers that sponsor employee benefit plans and the plan fiduciaries must continue to manage and administer their benefit plans, as well as address inquiries from their participants. The following are some topics that may be helpful during these times.
Hardship Withdrawals
Plan sponsors may receive calls from plan participants in the near future asking for ways they can financially assist them in light of the current economic downturn. Employers can allow employees to take hardship withdrawals from their 401k plan accounts to meet coronavirus related expenses, subject to satisfaction of the financial need rules. There are two possible options for permitting hardship withdrawals;
* It is important to keep in mind that your plan must allow one of the two provisions discussed above and the proper disaster declaration must be made and include the participant’s residence or place of employment in the area designated.
Also of importance to note is that a volatile stock market is not the most ideal time for a participant to withdraw funds from a retirement plan.
Key provisions of the CARES Act, (Not final legislation):
The CARES Act is looking to waive the additional 10% tax on early withdrawals up to $100,000 form a retirement plan or IRA for an individual who
The CARES Act allows those who take this distribution to pay tax on the income from the distribution ratably over a three-year period, as well as allows individuals to repay the amount tax-free back into the plan over the next three years, not subject to retirement plan contribution limits.
Plan Loans will be increased to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan, up from the lesser of 50% of the participant’s vested balance or $50,000. Those with an outstanding loan balance with a repayment due from the date of enactment of the CARES Act through December 31, 2020 can delay their loan repayments for up to one year.
Retirement plans will be able to adopt these rules immediately, once the act is put into law.
Here are some things to consider as you question your plan’s investments and monitoring schedule:
As more information becomes available, we will update the important features of the act. As always, please consult plan counsel before making any changes to plan operations.