Recent Legal Changes for Retirement Plans and IRAs By Sarah Sise, Partner, Lauren Schuster, Associate, and Gregory Chriss, Associate, Armstrong Teasdale LLP
In the last six months, two new significant laws have been enacted that impact employer-sponsored retirement plans and individual retirement accounts (IRAs). Most recently, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in response to the COVID-19 pandemic and includes several provisions that affect employer-sponsored retirement plans and IRAs. In addition, late in 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law as part of the year-end consolidated spending bills, and was intended to expand benefits for retirement savings and provide administrative improvements. Banks that sponsor retirement plans or offer IRAs in 2020 should be aware of the CARES Act and SECURE Act changes to ERISA and the Internal Revenue Code as outlined below.
CARES Act Relief Available under Retirement Plans. u Coronavirus-Related Distributions
(available until Dec. 31, 2020). The CARES Act permits CoronavirusRelated Distributions (CRDs) from retirement plans or IRAs for an eligible individual who (1) has been diagnosed with COVID-19 with a test approved by the Centers for Disease Control and Prevention (CDC), (2) has a spouse or dependent who was diagnosed with COVID-19 with a CDCapproved test, or (3) experienced
“adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease…” Total distributions treated as CRDs cannot exceed (1) $100,000 or (2) 100% of the participant or IRA owner’s account balance. Such a distribution offers certain tax benefits, including exemption from the 10% early withdrawal tax, the ability to be included in income over three years, and the ability to repay the distribution to the retirement plan or IRA within three years.
u Increased Plan Loan Limits and Extended Repayment Period (available until Dec. 31, 2020). The CARES Act also increases the limits on loans from employersponsored retirement plans from $50,000 to $100,000, and the benefit percentage limit from 50% to 100% of the present value of the employee’s vested benefit. In addition, any outstanding plan loans with payments due from March 27, 2020, to Dec. 31, 2020, may be delayed one year. The increase in plan loans and the extended loan repayment period are only available to qualified individuals who have a coronavirusrelated diagnosis based on a CDC-approved test, a spouse or dependent who was diagnosed based on a CDC-approved test, or certain adverse financial consequences due to COVID-19. u Required Minimum Distributions (RMDs) Waived for 2020. Employersponsored retirement plans and IRAs are typically required to make minimum distributions after a participant or IRA owner reaches a certain age (as discussed in more detail below). The RMD requirements do not apply for calendar year 2020.
SECURE Act Notable Retirement Plan Changes Effective in 2020. u RMD changes (effective Jan. 1,
2020). w Increased RMD Age from 70½ to 72. Under prior law, an employer-sponsored retirement plan was required to begin distributions to a non-actively employed participant by April 1 of the year after the participant reaches age 70½. Similarly, under prior law, the owner of a traditional IRA was required to begin distributions by April 1 of the year after reaching age 70½. For participants and traditional IRA owners who reach age 70½ on or after Jan. 1, 2020, the
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