Signed into law in March 2020 (oh, how time flies!), the CARES (Coronavirus Aid, Relief, and Economic Security) Act provided some much-needed retirement plan relief to both plan sponsors and plan participants. Some of the relief will be ending soon, however, and it’s critical for plan sponsors to get a head start and prepare. But you don’t have to go it alone (we’ll discuss more on how you can get help below). Let’s first do a quick refresher on the CARES Act retirement plan relief, and then we’ll dive into what you (plan sponsor) need to know come 2021.

CARES Act retirement plan relief refresher

Participant withdrawals
The legislation allowed plan sponsors to permit participants who qualify for coronavirus-related distribution to withdraw the lesser of 100% of their vested account balance or $100,000. Unless Congress extends it, this relief will go away come Jan. 1, 2021. Previously, participants had to meet certain requirements (i.e., termination of employment, be at least age 59-1/2, etc.) in order to take a distribution from the plan.

Participant loans
The legislation also provided some relief for participant loans. Our discussion here will cover mainly this topic. A quick overview:

• First, the CARES Act expanded loan limit, allowing employers to increase the maximum loan amount available. For plan loans made to a qualified individual from March 27, 2020, to September 22, 2020, the limit could have been increased up to the lesser of: (1) $100,000 or (2) the individual’s vested benefit under the plan. Previously, maximum loan available was up to $50,000.
• Second, the legislation allowed certain loan repayments to be delayed for up to one year. If a loan is outstanding on or after March 27, 2020, and any repayment on the loan is due from March 27, 2020, to December 31, 2020, that due date may be delayed under the plan for up to one year.

Re-amortizing loans for Jan. 2021 start

Plan sponsors that allowed the loan relief feature in their plans have to take certain actions come new year if certain participants took advantage of the relief. More specifically, participants who suspended loan repayments must resume regular scheduled payments starting Jan. 2021. More specifically: 

• One, participant loan repayments must restart as of Jan. 1, 2021 (unless Congress makes a change between now and Dec. 31).
• Two, the loan must be re-amortized to mirror the interest that accrued during the repayment delays in 2020.
• And three, when re-amortizing the loan, the maturity date can be extended up to one year to take into consideration suspension of repayments.

In a nutshell, those loan payments that were suspended must now be reinstated beginning 2021. The IRS published Notice 2020-50 which provides guidance and a safe harbor approach to reinstating loan payments after the December 31st sunset.

Next steps

Plan sponsors should reach out to their trusted service providers (TPA, financial advisor, or recordkeeper) to get help with re-amortizing loans that were temporarily suspended. Additionally, plan sponsors should provide participants with an updated amortization schedule and communicate the new loan repayment terms. You are not obligated to do this, but it’s best practice to mitigate participant complaints and other issues that may arise.

Questions? Need help?

At NESA 401(k) and 403(b) Experts, we are happy to provide support should you need help with re-amortizing participant loans and/or coordinating things with your plan’s recordkeeper.