Coronavirus aid package includes retirement-related relief

The policy changes affect retirement plan distributions and loans, among other measures

About midnight on March 25, 2020, the Senate unanimously approved a sweeping $2 trillion stimulus bill, including retirement relief provisions.  The Coronavirus, Aid, Relief and Economic Security (CARES) Act was passed by a vote of 96-0 (four senators were under quarantine at the time of the vote).  The bill was passed by the House on March 27 and signed into law by President Donald Trump on the same day.

Among other things, the measure gives direct payments to individuals, boosts unemployment insurance, provides tax relief to businesses, bolsters health care infrastructure, provides student loan relief, and makes several changes to retirement savings policy that allow plan participants to access cash for emergencies.

Key provisions of the CARES Act affecting retirement plans

Distributions from retirement plans and IRAs. The CARES Act waives the 10% additional tax for early distributions associated with any “coronavirus-related distribution” (or “CRD”) taken in 2020 for amounts not to exceed $100,000, subject to the following rules:

  • CRDs can be taken from IRAs and retirement plans including 401(k) plans, 403(b) plans, and governmental 457(b) plans.
  • The provision applies to individuals who have been diagnosed with “the virus SARS-CoV-2” or “coronavirus disease 2019 (COVID-19),” individuals whose spouse or dependent is diagnosed with the virus or disease, or individuals who experience adverse financial consequences as a result of:
    • Being quarantined, furloughed or laid off or having reduced working hours due to the virus/disease.
    • Being unable to work due to lack of child care due to the virus/disease.
    • Closing or reducing hours of a business owned or operated by the individual due to the virus/disease.
    • Other factors as determined by Treasury.
  • The CARES Act allows a plan to rely on a certification provided by the participant that he or she meets the conditions for a CRD.
  • Amounts distributed may be repaid in multiple payments at any time over the three-year period commencing on the day after the date the distribution was received.  These amounts can be repaid to a qualified plan or IRA, so long as the account is eligible to receive a rollover contribution under the Internal Revenue Code (“Code”).
  • To the extent that the amounts are not repaid, the income with respect to any CRD can be included ratably over three taxable years beginning with the taxable year in which the distribution was received.
  • CRDs are deemed to meet applicable limitations on in-service withdrawals under Code sections 401(k) and 403(b).  Such distributions are not required to be treated as eligible rollover distributions for purposes of the direct rollover requirement, the notice and written explanation of the direct rollover requirement, and the mandatory 20% income tax withholding for eligible rollover distributions.
  • A plan may allow a CRD notwithstanding the restrictions that otherwise apply to in-service distributions.  As with prior disaster provisions, it appears that the offering of this new distribution as a separate in-service distribution is optional for the plan.  If the plan is not amended, but the individual is otherwise eligible for a distribution, the individual could still take advantage of the individual tax benefit (i.e., the waiver of the 10% penalty and inclusion of income tax over three years), if not the expanded benefit amount.

Plan loans

If allowed by the plan, the loan limit can be increased from the lesser of $50,000 or 50% of the vested account balance to the lesser of $100,000 or 100% of the vested account balance.  This only applies to loans made on or before Sept. 23, 2020, (180 days following enactment of CARES) and is only for individuals that meet the same conditions outlined for the CRDs described above. 

In addition, subject to plan approval, scheduled participant loan repayments due from March 27, 2020, (the enactment of CARES) through Dec. 31, 2020, may be delayed for up to one year for qualifying employees.  Interest continues to accrue during the period and the plan can extend the term of the loan for up to one year.

RMD waiver

Required minimum distributions (RMDs) for 2020 are waived for all types of defined contribution (DC) plans (including 401(k), 403(b), and governmental 457(b) plans) and IRAs.  The RMD waiver applies for all eligible participants in DC plans, not just those affected by the virus.  In addition to RMDs for the calendar year 2020, the waiver also applies to 2019 RMDs for those who are required to take their first RMD by April 1, 2020, if the distribution was not taken before Jan. 1, 2020.

Waiving 2020 RMDs will help individuals avoid a tax bill on IRA value that has vanished.  If not for this relief, 2020 RMDs would be based on the account value as of Dec. 31, 2019, when the Dow Jones Industrial Average closed at 28,538 (compared to a close at 21,636 on March 27, 2020).  An RMD calculated based on a Dec. 31, 2019, value could lead to a disproportionate RMD relative to today’s account values, forcing a disproportionately large taxable distribution.

Plan amendments

For the CRD, loan provisions, and RMD waiver, the CARES Act includes relief for plan amendments, generally giving plans until the end of the 2022 plan year to adopt amendments, with an additional two years for governmental plans.

Delay in funding for DB plans

All single-employer funding obligations for defined benefit (DB) plans due during 2020 are not required to be made until Jan. 1, 2021, with interest for late payments.

Employer student loan reimbursements

The CARES Act extends Code Section 127 (which currently allows for tuition reimbursement up to $5,250/year) to apply to student loan repayments for employees, with no tax implications.

IRA contribution deadline extended outside of the CARES Act

On March 20, 2020, IRS Notice 2020-18 extended the due date for filing federal income tax returns and making federal income tax payments from April 15, 2020, to July 15, 2020.  The IRS clarified in Frequently Asked Questions (FAQs) issued on March 24 that the IRA contribution deadline for 2019 has been extended to July 15 as well.

One caveat: If an individual decides to make 2019 IRA contributions between April 15, 2020, and July 15, 2020, he or she should make certain that the contribution is specifically earmarked for 2019.

The CARES Act represents the third relief package enacted by Congress this year related to the coronavirus pandemic.  A fourth Congressional aid package, which may include additional retirement relief measures, is anticipated later this year.


Investment News, “Senate coronavirus stimulus bill waives RMDs this year,” Mark Schoeff Jr., March 25, 2020

SPARK Institute, “Status and summary of CARES Act,” Michael Hadley, March 25, 2020

ThinkAdvisor, “Stimulus plan includes temporary RMD waiver,” Melanie Waddell, March 25, 2020

NAPA Net, “Senate approves coronavirus stimulus with retirement relief,” Ted Godbout, March 26, 2020

Investment Company Institute (ICI), “Congress enacts coronavirus aid package including retirement plan relief,” Shannon Salinas, March 27, 2020

NAPA Net, “FAQs on CARES Act,” NAPA Net staff, March 30, 2020

Important Information

Blog header image: Bonninstudio / Stocksy

This is not intended to be tax advice. The information presented is based on current interpretation of federal tax law. State income tax laws may differ. Please consult your tax advisor for detailed information. Invesco representatives are not tax advisors. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. It is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax advisor for information concerning their individual situation.

The opinions referenced above are those of the author as of April 8, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

Jon Vogler
Senior Analyst
Retirement Research, Invesco Consulting

Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.

Prior to joining Invesco in 2008, Jon spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.

Jon earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He has a B.A. in History from Rutgers, The State University of New Jersey.

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