COVID-19 Relief for Retirement Benefits: Open Issues
61 Tax Mgmt. Memo. 138, 2020
7 Pages Posted: 19 May 2020 Last revised: 15 Jun 2020
Date Written: May 25, 2020
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 those individual’s benefits. IRS Notice 2020-23 similarly extends due dates for pension plan loan payments and for completing rollovers of distributions, but such relief is available to all participants and beneficiaries rather than being restricted to “qualified individuals,” but many seem unaware of this relief, particularly the deferral of loan due dates.
However, despite recent IRS and DOL guidance there are still major outstanding issues preventing Covid-19 victims from obtaining better access to their own accrued benefits, when they are most in need of such access, and may impose undue compliance costs or risks on plan sponsors and administrators. Plan administrators, participants, and beneficiaries have the following needs:
• many individuals who have suffered adverse financial consequences from Covid-19 need an expansion of the set of factors defining “qualified individuals” so they may take advantage of the CARES Act relief;
• plan administrators need to understand their responsibilities and authority to make “qualified individual” determinations;
• plan administrators need to understand their fiduciary responsibilities with respect to CARES Act cash-flow relief, particularly their disclosure obligations;
• plan administrators, participants, and beneficiaries need to understand their rights and options with respect to the deferral of plan loan dues dates available under IRS Notice 2020-23 until July 15, 2020 and under the CARES Act for one year;
• plan administrators, participants, and participants need to understand when participants and beneficiaries may choose to avoid income tax withholding on plan distributions;
• plan administrators, participants, and beneficiaries need to understand the circumstances under which participants and beneficiaries may repay distributions to an eligible retirement plan (which includes IRAs) or plans within three years of receipt of such distribution; and
• plan administrators, participants and beneficiaries need states to amend their tax laws to avoid undue interference with the cash-flow relief that the CARES Act makes available to participants and beneficiaries of eligible retirement plans.
Keywords: COVID-19, coronavirus, pandemic, financial relief, saving plans, pension plans, retirement plans, IRAs, state tax, ERISA, Internal Revenue Code, tax, loan relief, distribution relief, penalties, fiduciary responsibility
JEL Classification: I18, J26, J32, K34, K39
Suggested Citation: Suggested Citation