May 11, 2020
Stroock Special Bulletin
By: David C. Olstein, Austin S. Lilling, Abbey L. Keppler
The Internal Revenue Service (“IRS”) recently released a list of frequently asked questions and answers (the “FAQs”) addressing various issues related to the retirement plan distribution and loan provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. In this bulletin, and as a supplement to Stroock’s earlier publications, we highlight the most significant guidance contained in the FAQs.
Retirement Plan Provisions of CARES Act
As we discussed in our recent bulletin addressing the tax provisions of the CARES Act,[1] the CARES Act made a number of changes to federal law to afford individuals affected by COVID-19 (“qualified individuals”)[2] greater access to their retirement savings. The CARES Act permits eligible retirement plans to be amended to provide certain benefits for qualified individuals participating in such eligible retirement plans, such as:
For a more detailed description of the retirement plan provisions of the CARES Act, see our previous bulletin.
FAQ Guidance on Employer Adoption of CARES Act Distribution and Loan Rules
The FAQs make it clear that employers may, but are not required to, adopt the CARES Act distribution and/or loan rules. The IRS notes in the FAQs that “[a]n employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans,” and that “an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules.”
FAQ Guidance on Plan Distributions
The FAQs provide the following additional guidance with respect to coronavirus-related distributions from eligible retirement plans:
FAQ Guidance on Reporting and Taxation of Distributions
Several of the FAQs address how coronavirus-related distributions are to be treated for tax and reporting purposes, including the following guidance:
FAQ Guidance on Expected Future Guidance
The FAQs state that the Treasury Department and IRS expect to release additional guidance on the CARES Act retirement plan distribution and loan provisions in the near future. Such guidance is expected to apply the principles of IRS Notice 2005-92, issued on November 30, 2005, which provided guidance for similar retirement plan distribution and loan access for victims of the Hurricane Katrina disaster.
The FAQs indicate that this future guidance could include an expanded list of factors that may be taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences as a result of COVID-19. The Treasury Department and the IRS are currently reviewing comments from the public requesting such an expanded list.
If you have any questions on the foregoing, please feel free to reach out to us or your regular Stroock contact. Stroock’s employee benefits and executive compensation team is closely tracking the response of the Department of Labor, the Department of the Treasury and the IRS to the COVID-19 pandemic and is available to address your employee benefit and compensation concerns.
______________________________
For More Information
[1] “April Tax Guidance on the CARES Act and Other Relief,” (Stroock Special Bulletin, April 28, 2020).
[2] Qualified Individuals are individuals who are diagnosed (or whose spouse or dependent is diagnosed) with COVID-19 by a CDC-approved test, as well as individuals who experience adverse financial consequences as a result of COVID-19, including as a result of being quarantined, furloughed or laid off, having work hours reduced, being unable to work due to lack of child care or having a business they own or operate close.
This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.
May 11, 2020
Stroock Special Bulletin
By: David C. Olstein, Austin S. Lilling, Abbey L. Keppler
The Internal Revenue Service (“IRS”) recently released a list of frequently asked questions and answers (the “FAQs”) addressing various issues related to the retirement plan distribution and loan provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. In this bulletin, and as a supplement to Stroock’s earlier publications, we highlight the most significant guidance contained in the FAQs.
Retirement Plan Provisions of CARES Act
As we discussed in our recent bulletin addressing the tax provisions of the CARES Act,[1] the CARES Act made a number of changes to federal law to afford individuals affected by COVID-19 (“qualified individuals”)[2] greater access to their retirement savings. The CARES Act permits eligible retirement plans to be amended to provide certain benefits for qualified individuals participating in such eligible retirement plans, such as:
For a more detailed description of the retirement plan provisions of the CARES Act, see our previous bulletin.
FAQ Guidance on Employer Adoption of CARES Act Distribution and Loan Rules
The FAQs make it clear that employers may, but are not required to, adopt the CARES Act distribution and/or loan rules. The IRS notes in the FAQs that “[a]n employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans,” and that “an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules.”
FAQ Guidance on Plan Distributions
The FAQs provide the following additional guidance with respect to coronavirus-related distributions from eligible retirement plans:
FAQ Guidance on Reporting and Taxation of Distributions
Several of the FAQs address how coronavirus-related distributions are to be treated for tax and reporting purposes, including the following guidance:
FAQ Guidance on Expected Future Guidance
The FAQs state that the Treasury Department and IRS expect to release additional guidance on the CARES Act retirement plan distribution and loan provisions in the near future. Such guidance is expected to apply the principles of IRS Notice 2005-92, issued on November 30, 2005, which provided guidance for similar retirement plan distribution and loan access for victims of the Hurricane Katrina disaster.
The FAQs indicate that this future guidance could include an expanded list of factors that may be taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences as a result of COVID-19. The Treasury Department and the IRS are currently reviewing comments from the public requesting such an expanded list.
If you have any questions on the foregoing, please feel free to reach out to us or your regular Stroock contact. Stroock’s employee benefits and executive compensation team is closely tracking the response of the Department of Labor, the Department of the Treasury and the IRS to the COVID-19 pandemic and is available to address your employee benefit and compensation concerns.
______________________________
For More Information
[1] “April Tax Guidance on the CARES Act and Other Relief,” (Stroock Special Bulletin, April 28, 2020).
[2] Qualified Individuals are individuals who are diagnosed (or whose spouse or dependent is diagnosed) with COVID-19 by a CDC-approved test, as well as individuals who experience adverse financial consequences as a result of COVID-19, including as a result of being quarantined, furloughed or laid off, having work hours reduced, being unable to work due to lack of child care or having a business they own or operate close.
This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.