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CARES Act Impact on Retirement Plans

The IRS released that anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now has the opportunity to roll those funds back into a retirement account following the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act RMD waiver for 2020. The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity. Read more from the IRS on Notice 2020-51.

Additionally IRS Notice 2020-50, released June 19, 2020, provided additional guidance on Coronavirus Related Distributions and Loans from Retirement Plans under the CARES Act.

Here are a few frequently asked questions:

There are several changes that impact plan sponsors and participants, including:

  • Relief impacting “Coronavirus Related Distributions” for qualified participants;
  • Relief impacting plan loans to qualified participants; and
  • Changes impacting contributions to non-qualified deferred compensation plans.

Under the CARES Act, the additional 10% tax is waived for an individual who takes a distribution on or after January 1 and before December 31, 2020, and meets the following requirements:

  • Is diagnosed with COVID-19;
  • Has a spouse or dependent diagnosed with COVID-19; OR
  • Experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; OR
  • Meets other factors as determined by the Treasury Secretary.

Notice 2020-50 adds additional criteria for an individual to become eligible:

  • Having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • Having a spouse or a person who shares the individual’s principal residence being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a person who shares the individual’s principal residence due to COVID-19.

Plan Sponsor Takeaways:

  • The guidance provides additional methods to satisfy conditions to qualify for a Coronavirus Related Distribution or enhanced Plan Loans;
  • The expansion allows for impacted spouses or individuals who share the same principal residence with the participant to be able to satisfy the standard in order for the participant to be able to take a Coronavirus Related Distribution.

Yes. Notice 2020-50 expands “self-certification” to Plan Loans, which was not previously available under the CARES Act. The plan administrator may rely on the certification for Coronavirus Related Distributions and Plan Loans unless he or she has actual knowledge to the contrary, but there is no obligation to investigate the certification. In addition, the IRS has provided a sample certification that plans can use. The sample is not mandatory, but does provide guidance on what the IRS would expect in a self-certification.

Plan Sponsor Takeaways:

  • Evaluate whether the existing self-certification form is sufficient or should be replaced with the sample provided by the IRS;
  • Consider use of self-certification for Plan Loans.

Yes. Notice 2020-50 allows for distributions that are either a single payment or part of multiple distributions made during 2020, that satisfy the requirements for a Coronavirus Related Distribution can all be considered Coronavirus Related Distributions.

Plan Sponsor Takeaways:

  • Ensure recordkeeper can treat multiple distributions (within the maximum limitation of $100,000);
  • Establish procedures to ensure maximum limitation is not exceeded when multiple distributions are used for Coronavirus Related Distributions.

Yes. Notice 2020-50 provides guidance to Plan Sponsors concerning tax reporting of Coronavirus Related Distributions with alternative options available.

The first crucial piece of guidance is that if the Plan Sponsor treats the distribution as a Coronavirus Related Distribution, a Form 1099-R must be issued, even if the distribution is repaid to the same plan within 2020.

The second piece of guidance is that the Plan Sponsor can treat the distribution before age 59½ as an “early distribution, exception applies (Code 2)” meaning the Plan Sponsor acknowledges the distribution is a Coronavirus Related Distribution.

Alternatively, the Plan Sponsor can treat the distribution before age 59½ as an “early distribution, no exception applies (Code 1)” meaning the Plan Sponsor is not reporting the distribution qualifies for Coronavirus Related Distribution treatment; however, the participant is entitled to treat the distribution as a Coronavirus Related Distribution on his/her personal tax return.

Plan Sponsors may or may not have responsibility for assigning codes to Coronavirus Related Distributions; the plan’s recordkeeper may have that responsibility.

Plan Sponsor Takeaways:

  • Determine whether the Recordkeeper or Plan Sponsor is responsible for assigning the code to Coronavirus Related Distributions;
  • If the Plan Sponsor has a role in assigning the code, develop a process with the recordkeeper to identify which distributions will receive Code 1 or Code 2, respectively;
  • In January 2021, monitor recordkeeper to confirm that Forms 1099-R are issued in accordance with Notice 2020-50, including issuance to participants that also repay the distribution within 2020.

Yes. The IRS provided guidance that the responsibility for tax treatment as a Coronavirus Related Distribution lies with the participant.

Participants are responsible for ensuring that distributions do not exceed the limitation of $100,000 (unless all distributions are from a single Plan Sponsor’s plan(s)). In addition, eligible participants can treat a distribution as a Coronavirus Related Distribution no matter how the Form 1099-R reports the distribution (Code 2 or Code 1).
Participants are also responsible for determining whether to pay all the tax due with the 2020 tax return, or spread the tax over three years as well as tax treatment for the participant if the participant repays the Coronavirus Related Distribution.

Plan Sponsor Takeaways:

  • Plan Sponsor is responsible for limiting total distributions from all plans of the Plan Sponsor to no more than $100,000; however, the Plan Sponsor is not responsible for coordination with any plans from a different employer or from IRAs and this may influence the decision whether to use Code 1 or Code 2 for 1099-R reporting purposes
  • Plan Sponsors may wish to notify plan participants that Notice 2020-50 provides guidance regarding their responsibilities with regard to tax reporting for Coronavirus Related Distributions.

As mentioned above, the first significant change is that the IRS will allow self-certification for participants who wish to take expanded loans under the CARES Act, rather than limiting self-certification only to Coronavirus Related Distributions.

The IRS also provided guidance through an example on how repayments of suspended loans can be re-amortized upon recommencement of payments after suspension.

Although the IRS provided guidance through the example, the IRS also indicated that other methods of calculating repayments could be chosen by the Plan Sponsor as long as such method is reasonable. Presumably, a method that is similar to methods used when an individual returns from a leave of absence could provide insight into alternative methods.

Plan Sponsor Takeaways:

  • Consider use of self-certification for loans;
  • Determine methods for determining repayments upon expiration of loan suspension.

Yes. Per Notice 2020-51, the following amounts may be rolled over:

  1. Amounts that would have been RMDs in 2020 (or for 2020), but for the CARES Act, or are one or more payments (that include the 2020 RMDs) in a series of substantially equal periodic payments made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancies) of the participant and the participant’s designated beneficiary, or for a period of at least 10 years; and
  2. For a plan participant with a required beginning date of April 1, 2021, distributions that are paid in 2021 that would have been an RMD for 2021 but for the CARES Act.

In addition, the 60-day period for amounts that may be rolled over because of the RMD waiver for 2020 that would have otherwise expired has been extended to August 31, 2020. The extension also applies to the time for repaying the distribution to the plan.

Amounts that would have been RMDs that are rolled over by the August 31, 2020 deadline will not be considered rollovers for purposes of determining whether the one rollover in a twelve-month period for IRAs has been satisfied.

Please consider the following example.


  • Person A takes a $5,000 distribution from Plan 1 in January 2020, of which $3,500 would have constituted an RMD had the CARES Act not been passed;
  • In addition, Person A rolled over $150,000 from IRA 1 to IRA 2 on December 1, 2019;
  • Lastly, Person A took a distribution of $3,000 from IRA 1 in March 2020, all of which would have constituted an RMD had the CARES Act not been passed.

With the application of Notice 2020-51:

  • Person A could rollover $3,500 of the distribution from Plan A by August 31, 2020 since amounts that would have been RMDs can be rolled over beyond the standard sixty-day timeframe;
  • However, the additional $1,500 that did not constitute an RMD would not be eligible for the waiver of the sixty-day timeframe;
  • The entire $3,000 from IRA 1 could be rolled over even though such rollover would be less than twelve months from the December 1, 2019 IRA rollover of $150,000.

The IRS provided Q&As with additional technical guidance in the notice. Finally, the notice provides a sample plan amendment for implementing the RMD waiver.

Plan Sponsor Takeaways:

  • Determine if the plan will be amended to allow RMDs to be waived for 2020;
  • If the plan will be amended to allow RMDs, determine if the sample amendment conforms to how the RMD waiver will be implemented for your plan. Coordinate adoption of any amendment with your recordkeeper or TPA;
  • Determine if the Plan Sponsor should notify plan participants of the additional guidance and extension of the rollover or repayment period;
  • Review the Q&As in Notice 2020-51.

Yes. Treasury Regulation section 1.409A-3(j)(4)(viii) provides that deferred compensation elections may be cancelled upon distribution for unforeseeable emergency or hardship. Notice 2020-50 provides that a Coronavirus Related Distribution will be considered a hardship distribution for purposes of non-qualified deferred compensation and as such deferred compensation elections can be cancelled.

Plan Sponsor Takeaways:

  • When administering non-qualified deferred compensation plans subject to Code section 409A, Plan Sponsors should account for the impact of any Coronavirus Related Distributions from the Plan Sponsor’s qualified plans;
  • Coordinate with recordkeepers to ensure recordkeepers for both the qualified plans and the non-qualified deferred compensation plans adequately communicate with each other.

As always, Rehmann is here to help. Please reach out to your business advisor or to if there is anything we can do to assist you. In the meantime, continue to check the Rehmann COVID-19 Knowledge Center for the most current information related to the COVID-19 pandemic. Since information related to COVID-19 continues to change daily, please subscribe to our communications to ensure you remain up to date.


Published in COVID-19

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