Skip to main content

Financially Yours
Advisory Services

ARCHIVE (4/15/2020): Plan Sponsors and the CARES Act

LATEST UPDATE 4/13/2020 in red.

The details of the CARES Act are in process to be finalized, but new information is being updated every so often.  The information is current as of the post date.

On 3/27/2020, Congress passed the CARES Act, the largest economic stimulus plan ever at $2.2 Trillion.  The intent is to help everyone who has been affected by COVID, effectively everyone.

Below are some key provisions that are applicable to plan sponsors of retirement plans.  Please note that these are Federal guidelines.  Each state has their own rules that may or may not match the Federal changes for 2020.

  • RMDs - Waived during calendar year 2020.  If the RMD was already taken, it can be rolled back in within 60 days.  (401K, IRAs, and Inherited IRAs, but NOT DB or CB Plans) 
  • Loans - Plan sponsors can amend plans to include: (401k Profit Sharing & DB plans)
    • Qualified Individual is able to take a loan up to $100K or 100% of the vested balance.  The loan must be taken within 180 days of 3/27/2020 (by 9/23/2020).
    • Payments may be delayed up to 12 months on existing loans that is due between 3/27/2020 and 12/31/2020.
  • Distributions - Plan sponsors can amend plans to include: (401K Profit Sharing, 403B, 457B, does NOT apply to DB or CB Plans)
    • In-service withdraw of up to $100K for a qualified individual through 12/30/2020.  The 20% withholding and the 10% early penalty can be waived, but the distribution is still taxable.  The taxes can be spread out over 3 tax years and if the funds are put back within 3 years, no taxes are due.  The funds can be returned into an account different than the original account.  Likely will need to file a tax return amendment for this.
    • NOT the same as a hardship distribution, there is no need to prove the amount will be used to solve a problem.  Self-certification required.
  • DB, CB, and MP Funding
    • Deadline to contribute in 2020 has been extended to 1/1/2021.  However, since corporate tax returns are due prior (even with an extension), any contributions made between 9/16/2020 - 12/31/2020 will likely be filed on the 2020 tax return.  Interest will accrue from original due date to date of contribution.
    • Please notify your TPA immediately if you are considering freezing your DB plan for 2020.
  • Safe Harbor Plans - Plan sponsors may elect out a Safe Harbor provision mid-year, however Safe Harbor contributions will still be required through the end of the effective date.  Afterwards, ADP/Top Heavy Tests will apply for the full plan year.  Failure to pass the discriminatory tests will result in a 3% mandatory match (same as a Safe Harbor plan).  There is currently no guidance on temporarily stopping Safe Harbor contributions.
  • Partial Plan Termination
    • Typically applies if terminating approximately 20% of the workforce 
    • Full vesting of all terminating employees, regardless of whether it's related to COVID or voluntary.

Qualified Individual = Coronavirus Related Eligible Participant:

  • Individual, spouse, or dependent who tested positive for COVID-19
  • Self-certify that he/she has been affected financially by COVID via furlough, laid off, reduced hours, business closure, unable to work due to lack of childcare, etc.,

American Funds is a large provider of start up 401Ks, here is a list of their resources for their plan sponsors.  As the plan sponsor, you can choose whether you want to implement some of these options.

DB = Defined Benefit Plans

CB = Cash Balance Plans

MP = Money Purchase Plans

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc.,, nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.


Check the background of this financial professional on FINRA's BrokerCheck
Check the background of this financial professional on FINRA's BrokerCheck