Posted on by Jerome.Pfeffer

Pandemic Relief May Bring Administrative Pain to Plan Administrators

The CARES Act gave plan participants quick access to funds during the COVID crisis, although only about 6% of participants took advantage of the options offered.[1] However, as a plan sponsor you must understand your own obligations and how to keep your plan in good standing.

In most cases, the Coronavirus Aid, Relief, and Economic Security (CARES) Act did not change administrative procedures; however, it did raise a few compliance questions. With the subtle complexities involved, it is a best practice for plan sponsors to stay in close communication with their trusted administrator and, if necessary, ERISA counsel.

Coronavirus-Related Distributions

The CARES Act allowed qualified individuals to receive a “coronavirus-related distribution” (“CRD”) in the year 2020. Generally speaking, to qualify, a person or their spouse must have been economically affected by, or diagnosed with, COVID-19.

What the CARES Act changed:

A few questions raised:

  1. Is a plan required to accept a recontribution of a CRD?

No. While CRD repayments are considered rollovers, a plan is not required to accept them. If the plan does not accept rollovers, it does not have to be changed to accept rollovers or recontributions. A plan that does accept rollovers should review the recontribution of a CRD under the same procedures that apply to any other rollover contribution.

Yes. A plan administrator accepting a recontribution of a CRD must reasonably conclude that the recontribution is eligible for rollover treatment.

Even if a plan did not make CRDs available, qualified individuals who received distributions under existing plan provisions, either as in-service withdrawals or termination distributions, can designate those distributions as CRDs. This could, for example, make a hardship withdrawal eligible for recontribution.

Participants who received distributions may be informed of their ability to repay CRDs if they find they didn’t need the entire amount they withdrew.

Individuals may report one-third of the CRD amount as taxable income in each of three years, beginning with 2020. Alternatively, individuals may report the entire amount as taxable income on their 2020 tax returns and pay the associated taxes. However, the participant’s tax reporting is irrelevant from a plan perspective.

An individual may recontribute all or any portion of the CRD as a rollover to a plan or IRA within three years of receipt and avoid taxation on that amount. Any participant is responsible for obtaining his or her own tax advice.

Coronavirus-Related Loans

What the CARES Act changed:

A few questions raised:

  1. Must plan administrators provide notice to current employees who have outstanding loans that changed?

Qualified individuals who suspended loan repayments should have been notified that repayments resumed and that their loan was re-amortized for the remaining period of the loan to account for the accrued interest during the suspension period.

Nothing changes. If a plan accepts rollovers of loans from other plans, the plan’s existing procedural rules still apply.

Nothing changes. Most plans do not permit former employees to take plan loans and require repayment of loans upon employment termination. These plans are not required to change. If a plan permits terminated employees to continue to repay outstanding loans, normal procedures apply.

No special notice is required, and normal loan procedures will apply. If a CARES Act loan has been taken, it is still a plan loan and normal disclosures will suffice.

Minimum Required Distributions

What the CARES Act changed:

A few questions raised:

  1. Was this required?

Most administrators suspended these payments, but the plan sponsor had discretion as to whether to implement the suspension. Payments for 2021 are required to be paid by December 31, 2021 (or April 1, 2022 for initial required distributions for 2021).

What Else Should I Know?

One other thing to keep in mind is to speak with your plan administrator because plan amendments for the CARES Act provisions implemented are required by the end of the 2022 plan year (the 2024 plan year for governmental plans).

While we look towards recovery, a lot of has changed, but most has stayed the same. Hopefully, these detailed particulars were helpful as you oversee your company’s retirement plan. As you know, managing a retirement is no walk in the park, so when you have questions and would like to discuss in more detail, we are always here to help.

Jerome Pfeffer, CRC, AIF

Managing Director


6020 Academy NE, Suite 206

Albuquerque, NM  87109

(505) 888-4015 Direct

(505) 515-0036 Fax

Securities and Advisory Services Offered Through LPL Financial. A Registered Investment Adviser. 

Member FINRA / SIPC.

[1] Vanguard. “Revisiting the CARES Act and its impact on retirement savings.” January 2021.