The proposed Coronavirus, Aid, Relief and Economic Security Act (“CARES ACT”) would, if enacted, provide legislative relief to participants impacted by the Coronavirus pandemic. This relief is expected to be agreed upon and enacted – although likely with some modifications. We will update this post and provide additional detail at that time.
As currently drafted, the CARES ACT would provide the following relief with respect to hardship distributions and loans.
The 10% early distribution tax would be waived for the following virus related hardships:
- Participant is diagnosed with COVID-19;
- Participant’s spouse or dependent is diagnosed with COVID-19;
- Participant experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, experiencing a reduction of work hours, inability to work due to lack of child care caused by COVID-19, the closing or reduction of hours by a business owned or operated by such participant due to COVID-19; or
- Other circumstances as determined by the Treasury Secretary.
The CARES Act would provide additional tax relief in the form of a three-year period for (i) payment of tax on the distribution and (ii) tax-free repayment of the distribution to the plan.
The maximum loan that could be taken would be increased to the lesser of $100,000 or 100% of a participant’s vested account balance. This limit would be double the current limit of the lesser of $50,000 or 50% of a participant’s vested account balance. In addition, qualifying participants with outstanding loan