March 31, 2020
Authored by: Sarah Bhagwandin and Jennifer Stokes
With the economy in a free-fall and the U.S. government scrambling to create a financial safety net for citizens, giving access to tax-qualified retirement savings was a natural piece of Congress’ plan to loosen the grip on needed funds. And yet, plan sponsors should pause before adopting the new in-service withdrawal and loan options wholesale. The options made available under the CARES Act are permissive, not required. Implementing a thoughtful, needs-based, COVID-19 withdrawal/loan policy could protect employees’ financial security for decades to come.
Plan sponsors can adopt an incremental approach to COVID-19 in-service withdrawals or loans, and should consider doing so in the interest of helping participants not decimate hard-won savings in a panic.
What Options do Plan Sponsors Have?
COVID-Withdrawals. The CARES Act allows a new category of withdrawals, COVID-19 Distributions, which allows participants to take a withdrawal of the lesser of 100% of their vested account balance or $100K, anytime between January 1, 2020 – December 31, 2020, if they satisfy certain requirements. Click here to read our summary of the CARES Act withdrawal rules.
Plan sponsors can design a COVID-19 withdrawal program within the parameters of the CARES Act without allowing the full $100K withdrawal at once – or at all. The statute does not require that a plan go from 0 to 100! Further, while the new law allows plan administrators to rely on the representation of participants that they qualify for the in-service withdrawals, plan sponsors can impose any reasonable substantiation