New Stimulus Package Changes Certain Plan Rules
The president signed the “Coronavirus Aid, Relief and Economic Security Act,” referred to as the CARES Act, into law on March 27. With the stimulus package comes significant changes to retirement plan distributions,loans and required minimum distributions (RMDs). Below are a few of the highlights as you navigate your plan administration.
Certain Penalty-Free Distributions
Employees can take early distributions of up to $100,000 and have the early withdrawal penalty tax of 10% waived, if the employee or family member is physically affected by the coronavirus. It also applies if an employee experiences consequences such as a layoff as a result of coronavirus. The waiver applies to distributions taken between Jan. 1, 2020 and Dec. 31, 2020. Plan sponsors have to rely on the employee’s certification that he or she meets the criteria. And, if an employee participates in more than one plan sponsored by the employer, the aggregate amount of distributions can’t exceed $100,000.
Extended Deadline on Tax Payment of Distributions
The mandatory 20% income tax withholding for rollover distributions is suspended between Jan. 1, 2020 and Dec. 31, 2020. In addition, income taxes on a coronavirus-related distribution can be paid over a three-year period. The individual also has up to three years to recontribute the amount to a retirement plan or IRA.
Modified Plan Loan Rules
Again, assuming that the employee qualifies, he or she can take a maximum loan equal to the lesser of $100,000 or 100% of the employee’s vested account balance before it’s a taxable event. This loan amount is double what has been allowed under the law. And, employees who have outstanding loan balances on or after March 27, 2020, may be able to delay loan repayment for up to a year, regardless of the five-year repayment period. Future payments will be adjusted to reflect interest accrued for the period of delay, and employees will receive an extension on the term of the length of the loan.
Delayed Pension Plan Contributions
Companies with pension plans can now delay making the minimum contribution to the plan that was originally due in 2020 until Jan. 1, 2021 (accrued interest will also be due).
2020 RMDs Waived
Retirees now have a breather on taking an RMD in 2020. All RMDs are suspended in 2020, including those for 401k, 403b, 457b plans, inherited IRAs and traditional IRAs.
DOL Authority to Extend ERISA Deadlines
Department of Labor (DOL) to postpone certain deadlines related to ERISA Section 518 in the event of a public health emergency declared. Deadlines that might be affected include Form 5500 filing deadlines and ERISA claim and appeals-related deadlines.
Portfolio Rebalancing Considerations
Many of your participants are in professionally managed portfolios like target date funds, which require no action on the part of your employees. However, those who are selecting their own investments may be concerned given the extreme coronavirus-related market swings taking place over the last two to three weeks and might need to review and rebalance their retirement plan portfolios. Rebalancing means certain asset classes may be over or under allocated as a result of market changes and need to be realigned to help maintain the risk level that match employees’ risk tolerance and time frame for retiring.
At Mariner Wealth Advisors, our retirement plan solutions team advises employees to stay the course unless a pre-established deviation in assets has occurred, such as the portfolio has become unbalanced with 80% equities and 20% bonds. Ultimately, consider encouraging employees to have a plan, and stay the course with the plan and rebalance when there is a shift in asset allocation and it makes sense in light of each employee’s situation.
Contact Our Retirement Plan Solutions Team
With all of these legislative changes and ongoing market volatility, you will likely receive questions from your employees about early distributions, loans and rebalancing. Consider contacting the Retirement Plan Solutions team at Mariner Wealth Advisors. We are here to help plan sponsors and employers navigate these rapidly changing circumstances.
The Law Firm Review, The Rosenbaum Law Firm, Inc.
“House Passes Coronavirus Stimulus Bill With RMD, 401k Provisions,” 401k Specialist. “IRA and Retirement Plan Changes in the CARES Act,” forbes.com.
This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.
Please read the disclosure statement carefully before you invest or send money. Securities Offered through MSEC, LLC, Member FINRA & SIPC, 5700 W. 112th Suite 500, Overland Park, KS 66211.