Update as of April 2nd, 2020
April 2, 2020 – Update
UB Pensions encourages Plan Sponsors to review the materials and processing information from their Record Keeper or Investment Company (American Funds, VOYA, Mass Mutual, Principal, Nationwide, John Hancock etc…) for COVID-19 Distributions, Loans and Loan Suspensions along with other provisions
Summary of Loan and Distribution Provisions:
For Those Affected (simplified definition) -
Loans are increased to 100% of vested value up to 100k;
Loans repayments on existing loans can be suspended for a year;
Qualified COVID-19 Distributions up to 100k are penalty free and the withholding is waived; The amount can be paid back in 3 years or the taxes paid over 3 years
March 30th, 2020 - First and foremost, we hope you are healthy and your families are safe and secure. All UB Pensions employees are working remotely and can be reached by phone and/or email during normal business hours. We have allowed employees to work partially from home for years and are well equipped to service plans and process reports and forms remotely.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law.
The law contains many relief provisions for Americans and businesses, but we wanted to focus on those that effect retirement plans. We do not currently have a date when recordkeepers will have the capabilities to process Covid-19 loans and distributions, but we expect this to be an expeditious process.
Coronavirus Related Distributions
Coronavirus Related Distribution is available to any eligible plan participant who meets any of the below criteria:
A diagnosis of SARS-CoV-2 or Covid-19 by a test approved by the Centers for Disease Control and Prevention (CDC).
A diagnosis of SARS-CoV-2 or Covid-19 by a test approved by the Centers for Disease Control and Prevention (CDC) of any immediate family members such as a spouse or dependent.
Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced due to such virus or disease, closing or reducing hours of business owned or operated by the individual due to such virus or disease.
Other factors as determined by the Treasury Secretary.
The participant’s statement would have to be taken in regards to whether the participant qualifies for a Coronavirus Distribution.
These distributions will have certain requirements and special rules:
The maximum amount that can be requested for a distribution is $100,000 per tax year. This distribution window ends on December 31, 2020.
20% withholding will not occur at the time of distribution and is not eligible for rollover. The taxes on the distribution can be paid at the time of distribution or spread over 3 years by the plan participant.
If participant is under age 59 ½ then the early withdrawal 10% penalty will not apply.
The amount of the distribution can be replenished back by the participant within a 3-year time frame if desired so that their retirement savings is not diminished.
There are two available forms of loan relief being provided:
If the plan allows for loans, the plan participant can take a maximum loan in the amount of $100,000 or 100% of their vested account balance. The duration of the loan could be for up to 5 years.
Suspending existing outstanding loan repayments
If a participant requests to suspend their loan repayments, then you as a plan sponsor will be able to suspend their loan repayments for 1 year. The request to suspend loan repayment needs to made by the participant by December 31, 2020.
The 1-year suspension of loan repayments is added to the original loan term and interest continues to accrue regardless of the length of the loan’s original term.
This would apply to all plan participants even if they were furloughed or temporarily considered laid off.
Both the Coronavirus related distribution and loan relief is optional and the plan trustee would need to allow it in the plan. If the above relief is offered an amendment to the plan document will be required to be adopted by the last day of the plan year beginning in 2022; this would be December 31, 2022 for a calendar year plan.
Required Minimum Distribution (RMD) for 2020
With the volatility in the Market, the IRS has given relief for 2020 RMD’s so withdrawals do not have to be made from an account that has lost in value. Please also recall that in 2020 the SECURE Act increased the age for RMD’s to 72. Current temporary relief under CARES Act is as follows
A Required Minimum Distribution will not be required in the following instances:
Participant who reached 70 ½ prior to 2020 will be exempted and not required to take an RMD for 2020.
Participant who reached 70½ in 2019 and who has not taken his/her first RMD for 2019 by December 31, 2019 will not have to receive their first (2019) RMD or their 2020 RMD. Participants who reach 72 in 2020 will be exempted to take their 2020 RMD. Beneficiaries receiving life expectancy payments will not be required to receive 2020 beneficiary RMD. If the beneficiary was using the 5 year distribution rule, the beneficiary will now have 6 years to cash it out from the time of the participant’s death.
The full text of the new law can be found here: https://www.congress.gov/bill/116th- congress/senate-bill/3548/text#toc-H638004C502804947B4CFB9B4B770C2F2
Please note that these provisions are optional and Plan Sponsors have until 12/31/2022 to comply (calendar year plan). Please note there is a required Plan Document restatement for Post PPA 8/1/2020 – 7/31/2021.
All associates of UB Pensions are here to assist you during this crisis. Our Recordkeeper Partners (American Funds, VOYA, Mass Mutual, Empower, Principal, Nationwide, Lincoln, Transamerica and more) are working hard to update their systems and will have communications to help participants and keep everyone updated.
There are still plenty of questions that we do not have answers to. We will update this document when we know more.
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