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Provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 have many benefit sponsors scrambling to make sure their company retirement plans are in compliance with the new regulations, should they choose to implement them. Plan sponsors know time is of the essence to help employees during this crisis. That's where the CARES Act comes into play. If certain criteria (see below) are met, the CARES Act allows individuals to take a coronavirus-related distribution (CRD) from their retirement account to mitigate the financial impact of the pandemic.
Over the past two months, more than 36 million people have filed unemployment claims. However, over the next several months, more businesses will add employees to their payrolls, which will help lower the country's unemployment rate that is near historic highs (currently around 14.7 percent).
Meanwhile, CRDs may be the best option to help employees get through this dark period. Here are five areas that benefits executives should focus on to help employees access their retirement funds and manage plan compliance:
1. Who is eligible for a coronavirus-related distribution?
The CARES Act stipulates that plan participants must meet one of the following criteria to qualify for a CRD (see below). Also, participants, not employers, are required to prove they meet the conditions to qualify for a CRD:
- Diagnosed with the virus SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC).
- The participant's spouse or dependent has been diagnosed with the virus or disease by a CDC-approved test.
- The participant has experienced "adverse financial consequences" from being quarantined, furloughed or laid off from work; has had work hours reduced due to the virus; has been unable to work due to lack of child care because of COVID-19; has reduced hours of a business owned or operated by the participant; or other factors determined by the Secretary of the Treasury.
One important point about CRDs and married couples: If a participant's spouse has adverse financial consequences due to COVID-19, then the participant can take a coronavirus-related distribution.
2. Key retirement plan withdrawal provisions of the CARES Act
The CARES Act lists several new provisions that permit individuals to withdraw or borrow from their retirement savings. Here the four most important new rules:
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