Proposed Technical Corrections for Cash-Flow Relief Provisions of the Cares Act for Individuals with Savings or Retirement Benefits
48 Comp. Plan. J. 135 (2020)
8 Pages Posted: 9 Jun 2020 Last revised: 23 Jun 2020
Date Written: June 5, 2020
The CARES Act provides cash-flow relief for individuals who want to access their savings and retirement plan benefits without adverse tax consequences. There are significant outstanding issues with those provisions. The article discusses and proposes technical corrections to address three such issues.
• Is there a single certification procedure to determine who is eligible to access their own savings and retirement benefits? The HEROES Act, the multi-trillion-dollar proposal to supplement the CARES Act that the House of Representatives approved in mid-May, addresses this issue differently than both the IRS guidance and the article’s proposal.
• Are those eligible to so obtain their own benefits defined sufficiently broadly? The HEROES Act broadens the eligibility for the Covid-19 enhanced family and medical care leave relief. The Act does not address the far narrower CARES Act eligibility criteria for individuals who wish to access their own savings and retirement benefits.
• Is there an unambiguous and intuitive method to determine the new amortization schedule for an eligible individual who wishes to take advantage of the CARE Act deferral of 2020 due dates for plan loans? The HEROES Act, again, does not address this issue.
The article also proposes a state law change to prevent adverse state and local personal income tax consequences for plans, participants, and beneficiaries who wish to take advantage of the cash-flow relief of the CARES Act to access their own savings and retirement benefits. For example, the CARES Act permits in-service distributions that would otherwise cause savings and retirement plans to lose their tax-exemption. State and local tax laws that are not coupled with the Internal Revenue Code may tax plans that decide to provide such cash-flow relief, and also prevent participants and beneficiaries from deferring tax on their plan benefits. The article therefore presents a technical correction to state and local personal income tax laws that conformed to the Code before the enactment of the CARES Act, such as those of New York State, to assure that those laws conform to the Code provisions changed by these relief provisions and only those provisions.
Keywords: COVID-19, coronavirus, pandemic, disaster, financial relief, financial crisis, saving plans, pension plans, retirement plans, IRAs, income tax, tax, state, ERISA, Internal Revenue Code, loan relief, distribution relief, federalism, statute
JEL Classification: H!2, H24, I18, J26, J32, K34, K39
Suggested Citation: Suggested Citation