The 401(k) and 403(b) Experts at NESA Plan Consultants regularly receive questions from plan sponsors, financial advisors, CPAs, and other industry professionals on broad array of topics related to qualified retirement plans. A recent question came from a HR Executive in Glendale, CA regarding the new CARES Act retirement plan relief.
Background
As you know, the CARES Act, signed into law on March 27, 2020 provided some retirement plan relief, including the ability for plan participants to take out distributions and loans. It can be difficult to keep up with all the changes coming from Washington, DC as result of this unprecedented time we face, so some guidance here would be great.
Question
Must we opt into the CARES Act retirement plan relief? In other words, are we required to extend these new distribution and loan provisions to our plan participants?
Answer
No, it is completely optional for your plan. As a refresher, the CARES Act allows an employee to take out a distribution up to $100,000 (can be paid over 3 years to avoid income taxes), or a loan up to $100,000 or 100% of his vested account balance (that’s double the normal limit). You’re not required to allow these features in your plan and can opt out. However, we suggest weighing pros and cons before making a decision. Your service provider should be reaching out to you, if not already, and help you take the necessary steps to either opt in or opt out of these provisions.
If you elect to offer this relief, the good news is that you can do so now and don’t have to memorialize it and amend your plan until the end of the 2022 plan year. With that said, we are strongly encouraging our clients to document their elections in writing now (preferably through a resolution of some other “official” action by the company) to reduce any surprise questions later on. Having documentation in place now will also help ensure the amendment is prepared correctly come 2022.
Please visit our covid-19 FAQ for employers and employees.
Have a question? Need clarification? We are here to help. Feel free to contact us.
About the Author
A 14-year veteran in all aspects of workplace retirement plan benefits program, Mizan J. Rahman specializes in the compliance, administration, design, and legal documentation of 401(k), 403(b), and 457(b) plans. Mizan provides high-level, personalized consulting to small and medium-sized businesses and not-for-profit organizations. One of the select few to have been awarded Enrolled Retirement Plan Agent (“ERPA”) by the Internal Revenue Service, Mizan regularly represents clients in front of DOL and IRS during audits.
Oh, Did We Mention We Love Answering Questions?
