Insight: How the IRS, DOL Believe CARES Act Takes Care of an Individual's Savings, Retirement Benefits

Abstract

The CARES Act provides cash flow relief for qualified individuals with savings and retirement benefits by enhancing provisions for direct loans and indirect loans (repayable distributions) of such benefits. Both the IRS and DOL have recently issued guidance with respect coronavirus-related relief for an individual with savings and retirement benefits, including IRAs.

The IRS and the Treasury Department “anticipate” issuing further guidance. However, there is a need not only for more guidance, but for revised guidance to be issued quickly, so that those entitled to coronavirus-related relief will be aware of and be able to take advantage of all such relief and thereby avoid unnecessary suffering.

The article discusses why it is advisable for the

• Treasury Department to exercise its statutory discretion to broaden the factors that define which individuals are eligible so that a large part of almost half of the workforce whose household has suffered adverse financial consequences may take advantage of the CARES Act relief;
• IRS to describe how qualified individuals may be determined for all of the cash flow relief under the CARES Act;
• IRS to describe the deferral of plan loan dues dates available under IRS Notice 2020-23 in concert with the similar relief available under the CARES Act;
• IRS to describe how the new level payment amortization schedule is determined if an individual defers plan payments in accord with either relief protocol;
• IRS to describe the 12-month-deferral of plan loan due dates for “qualified individuals” as mandatory in the same manner as the deferral under IRS Notice 2020-23 for all individuals with plan loan due dates between April 1 and July 14, 2020;
• IRS to describe the right of qualified individuals to avoid income tax withholding on coronavirus-related distributions;
• IRS to describe the right of qualified individual to repay all coronavirus-related distributions to an eligible retirement plan (which includes IRAs) or plans within three years of receipt of such distribution; and
• DOL to describe the fiduciary duties, including the disclosure requirements with respect to the cash flow relief made available by the CARES Act and the IRS Notice 2020-23.

Keywords: COVID-19, coronavirus, IRS, DOL, financial relief, saving plans, pension plans, retirement plans, IRAs, ERISA, Internal Revenue Code, tax, loan relief, distribution relief, penalties, fiduciary responsibility

JEL Classification: I18, J26, J32, K34, K39