CARES Act Frequently Asked Questions

Apr 3, 2020

CARES Act Frequently Asked QuestionsBelow are a few short Q & A topics that you may find relevant. These are intended to be a guide and should not be construed as specific advice relative to your plan. Of course, we welcome you to contact us to discuss your specific situation.

Changes Related to Employer Contributions

Changes Related to Distributions

Changes Related to Loans

Q & A – Changes Related to Employer Contributions

Q1. Has the IRS extended the deadline for 2019 employer contributions?

A1. Not exactly, but effectively yes, as there is an extension of the corporate tax return due dates which has the effect of extending your contribution due date. As a reminder, employer contributions must be made prior to the filing of the corporate tax return.

Q2. What are my options for cutting expenses relative to our employer match?

A2. If you are depositing your match with each payroll and you want to delay funding, you may defer these contributions until your extended tax return, as noted in Q1. But, note that some plans may require an amendment to accommodate this change. If you wish to enact a modification in the match contribution funding, please contact us to review your options.

Q3. What if our plan offers a safe harbor match?

A3. There are a couple of options:

1 – Delay current funding of your contributions without eliminating them. You will be liable for making these contributions by the deadlines discussed in Q1. But, note that as described in Q2, some plans may require an amendment to accommodate this change.

2 – Elect to end the plan’s safe harbor status, but certain requirements come with this decision:

  • Must provide a formal 30-day notice to employees. Alliance will prepare this for you.
  • Required to fund the contributions for the year through the end of the 30-day notification period.
  • Plan will be subject to discrimination testing for the year, which may result in refunds to Highly Compensated Employees (HCEs) if the plan fails testing.
  • Can elect to be a safe harbor plan for 2021 if employees are notified by December 1, 2020.
  • Plan may be subject to top-heavy minimum contributions.

Before deciding, keep in mind that your liability may already be decreasing for matching contributions as we have seen participants electing to decrease 401(k) deferrals in the last week or so.

Q & A – Changes Related to Distributions

Q1. I understand that the CARES Act allows for participants to request a distribution of their account up to $100,000. Are we required to offer this option to our participants?

A1. No, as a default, the CARES Act provisions will not be implemented unless you complete the Cares Act Amendment Form.

Q2. Do we have to figure out if a participant meets the criteria for Coronavirus-Related Distributions (CRDs)?

A2. No, the law allows employees to “self-certify”, which means the plan can rely on a certified statement from the employee that they meet the criteria for CRDs.

Q3. Do we have to notify our employees if we adopt these changes?

A3. No, but we think you may want to anyway. After completing the CARES Act Amendment Form, we will provide a brief notice that you can distribute, or we can post on the web. Just let us know.

Q4. Are we required to amend our plan to offer the increased distribution limits?

A4. Yes, but not until 2022. Alliance will prepare the required amendment after the regulations and plan document language are finalized and issued.

Q & A – Changes Related to Loans

Q1. I read about an increase in the maximum amount that a participant can request for a loan. Are we required to offer these options to our participants?

A1. No, you are not required to offer the increased limits.

Q2. If we choose to adopt the CARES Act provisions, how much can be taken?

A2. Loan limits increase as follows:

  • Maximum of $100,000, rather than the current $50,000.
  • Up to 100% of a participant’s account may be withdrawn, rather than the current 50% limit.
  • Increased limits available for loans initiated by September 22, 2020.

Q3. If our plan does not currently offer loans, are we now required to do so?

A3. No, even if you want to offer the new CRD distribution provision, you are not required to offer loans in your plan.

Q4. Do we have to figure out if a participant meets the criteria for Coronavirus Related Distributions (CRDs)?

A4. No, the law allows employees to “self-certify”, which means you can rely on a certified statement from the employee that they meet the criteria for CRDs.

Q5. If we have laid off or furloughed employees, what do we do with their loan repayments?

A5. The CARES Act allows for deferring loan payments at the request of the participant for up to 12 months. The request to extend a loan must be made prior to December 31, 2020. Alliance will provide a form that participants can complete to delay their loan repayment.

Participants who extend their loan payments should be aware of two things:

  • Loan interest will continue to accrue on the unpaid loan balance during the suspension period.
  • The loan will be re-amortized when payments resume. It’s important to remember that because of the accumulated interest, the new loan payment may be larger than the original loan payment.

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