CARES Act C E A R S Coronavirus and Economic Aid Relief - - PowerPoint PPT Presentation

▶
cares act c e a r s
SMART_READER_LITE
LIVE PREVIEW

CARES Act C E A R S Coronavirus and Economic Aid Relief - - PowerPoint PPT Presentation

Aug 24, 2023 315 likes •616 views

Confidential CARES Act C E A R S Coronavirus and Economic Aid Relief Security Signed into law by the President on March 27, 2020 Purpose Help Americans access retirement money and provide economic relief New distribution type Higher

slide-1
SLIDE 1

Confidential

CARES Act

slide-2
SLIDE 2

Signed into law by the President on March 27, 2020 Purpose Help Americans access retirement money and provide economic relief

C

Coronavirus

A

Aid

R

Relief

E

and Economic

S

Security

New distribution type Higher loan limits Relief

2

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-3
SLIDE 3

Coronavirus-Related Distribution (CRD)

Plan sponsor has discretion whether to offer this design, with modifications (if so desired and their service provider can accommodate), in their qualified plan Waiver of 10% penalty

  • n early withdrawals for

amounts up to $100,000 from a retirement plan or IRA taken between January 1, 2020 and December 31, 2020 (so can be retroactively applied to distributions taken prior to enactment of the Act) CRDs

  • nly available to a qualified individual

(see “qualified individual” below) Individuals may elect to pay the tax on a CRD ratably over a three year period; and Individuals may elect to repay the CRD back to the plan, tax-free, over the three years from the date of the withdrawal (not limited by plan limits). May be repaid back into the plan making allowing the withdrawal, another qualified plan or an IRA that accepts rollovers.

3

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-4
SLIDE 4

Participant Loans

Loan Limit Increase: For participant loans taken from plans between enactment of the Act and September 22, 2020, loan limits may be increased for qualified individuals (see “qualified individual” below) to the lesser of:

  • $100,000; or
  • 100% of their vested

account balance. Loan Repayment Delay:

  • Qualified individuals (see “qualified individual” below) with
  • utstanding loans;
  • Repayment due from the date of enactment of the Act through

December 31, 2020;

  • May delay loan repayments for up to one year
  • Plan can choose to extend the term of the loan for up to a year as

well

  • Allows participants to avoid a default->deemed distribution->taxable

event

  • Extending loan term allows participants to avoid financial hardship

when they do resume repayment by keeping their repayment amount reasonably similar to the payment amount prior to the suspension

  • Continue to accrue interest during the period of the suspension of

repayments. Plan sponsor has discretion whether to implement these design elements, with modifications (if so desired and their service provider can accommodate), in their qualified plan

4

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-5
SLIDE 5
  • Is diagnosed with COVID-19;
  • Whose spouse, or dependent (as defined by the

Internal Revenue Code) is diagnosed with COVID-19;

  • Who experiences adverse financial consequences

due to furlough, quarantine, layoff, reduction in hours, inability to work due to lack of child care due to COVID-19, or closing of business/reduction of hours by individual due to COVID-19; or

  • Factors determined by the Secretary of the Treasury

Eligibility for the CRD, the higher loan limit, and the loan repayment delay are conditioned upon a participant meeting

  • ne of the following

criteria:

Qualified Individual

Importantly, the Act does not require the plan sponsor to verify whether an individual qualifies for the COVID-19 adjusted loan limits or the CRD. The plan sponsor may rely upon a participant’s certification for eligibility.

5

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-6
SLIDE 6

Required Minimum Distributions

For RMDs that were made prior to enactment of the Act in 2020 the participant may defer taxes and roll it back to the plan from which it was made or roll it to another qualified plan or IRA which accepts

  • rollovers. Additional guidance regarding any potential impact to the 60-day rollover period is expected

from the IRS.

The Act waives RMD payments for 2020. Includes RMD attributable to 2019 which was not paid by January 1, 2020; Includes RMD if made prior to enactment of the Act in 2020; but Does not include RMD distributions that were made in 2019.

6

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-7
SLIDE 7

Defined Benefit Plans Relief

  • Delayed due date accompanied by interest on the delayed contributions from the original due date(s) at the

effective rate for the plan year that includes the date of payment.

  • Plan sponsors should expect leveraging delay should lead to higher contributions in 2021.
  • Plans may delay contributions due in calendar year 2020 (including all quarterly contributions)
  • Due date: January 1, 2021
  • The new January 1, 2021 due date applies for all quarterly contributions (they would no longer be separately due)
  • Plan sponsors have option to use plan’s funded status for the last plan year ending before Jan. 1, 2020, for

purposes of determining the funding-based benefit limitations for plan years that include calendar year 2020.

  • This provision enables plan sponsors to avoid restrictions on future benefit accruals and on distributions in
  • ptional forms under Code Section 436 where a plan has a decline in funding status resulting from the market

downturn tied to COVID-19.

7

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-8
SLIDE 8

Defined Benefit Plans Relief

  • Extends deadlines that fall within April 1, 2020 to July 15, 2020 window for:
  • PBGC Premiums
  • ERISA Section 4010
  • Now all due July 15, 2020
  • Not apply to particularly important or time-sensitive filings on PBGC “Exceptions List” on

PBGC’s Disaster Relief webpage

  • Indicates high risk of harm to pension plan participants
  • Indicates high risk of harm to the insurance program

PBGC Offers Relief:

8

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-9
SLIDE 9

Notification?

  • Plan sponsor choosing not to provide notice will

not face civil penalties

CARES Act does not mandate notice

  • f CARES Act provisions to plan

participants

  • Trailing requirement

Amendments to plan (end of 2022) require a summary of material modification (SMM)

  • Need not rise to level of formal

disclosures/notices

  • Strong public relations move in engendering

goodwill with employees

Practical consideration: Changing elements of plan that significantly changes participants’ rights under the plan seems an appropriate time to provide some level

  • f communication

9

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-10
SLIDE 10

DOL Deadlines & Other Relief

  • Notice, Disclosure, Document deadlines
  • Subject to duration limit of ERISA section 518, no ERISA violation for

those that must be furnished between March 1, 2020 and 60 days after the announced end of the COVID-19 National Emergency if:

  • Responsible plan and fiduciary act in good faith; and
  • Furnish as soon as administratively practicable under the

circumstances

  • May rely on electronic alternative means if reasonably believes

participants/beneficiaries have effective access (email, text messages, continuous access websites)

CARES Act empowers Department of Labor to extend deadlines for notices and reporting – TBD

10

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-11
SLIDE 11

DOL Deadlines & Other Relief

  • Failure to follow distribution or loan procedures
  • DOL not treat as failure if:
  • Failure solely due to COVID-19;
  • Plan administrator makes good-faith diligent effort

under circumstances to comply; and

  • Administrator makes reasonable attempt to correct

deficiencies as soon as administratively practicable

  • Relief not include missing spousal consent or other statutory or

regulatory requirements

  • Loans and prohibited transactions
  • IRS and DOL will not treat persons violating adequate security and reasonably

equivalent basis requirements of ERISA as prohibited transaction if loan made pursuant to CARES Act

11

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-12
SLIDE 12

DOL Deadlines & Other Relief

  • Untimely remittance of loan repayments or contributions
  • DOL not take enforcement action if:
  • Temporary delay in forwarding payments;
  • Employers act reasonably, prudently, and in interest of employees; and
  • Comply as soon as administratively practicable under circumstances
  • Blackout notices
  • Generally plans are required to provide 30 days prior notice
  • Exception to advance notice when inability to do so due to events “beyond

reasonable control of the administrator and a fiduciary so determines in writing”

  • DOL not require the fiduciary to do so in writing as “ . . . pandemics are by

definition beyond a plan administrator’s control.”

12

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-13
SLIDE 13

DOL Deadlines & Other Relief

  • DOL general fiduciary compliance guidance
  • Fiduciaries should act reasonably, prudently, and interest of covered

workers and their families

  • Fiduciaries should make reasonable accommodations to prevent loss
  • f benefits or undue delay
  • Fiduciaries should attempt to minimize possibility of individuals losing

benefits due to failure to comply with pre-established timeframes

  • DOL approach to enforcement to emphasize:
  • Compliance assistance
  • Grace periods
  • Other relief where appropriate

13

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-14
SLIDE 14

IRS Deadline Relief

  • Time sensitive acts to be completed in April 1, 2020 to July 15, 2020 window
  • Extended to July 15, 2020
  • Loan repayments to qualified plans
  • Distribution of excess deferrals, excess aggregate contributions, and income related to each
  • 60 day rollovers
  • 5500s (for PYE September, October, and November 2019, and those who filed for extension
  • No extension relief for calendar year plans whose deadline remains July 31, 2019
  • Correction periods for self-correction operational failures under EPCRS

IRS Issues Notice 2020-23 – Extending deadlines

14

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-15
SLIDE 15

DOL Participant FAQs

  • Who do I contact for benefits?
  • My benefit didn’t come!
  • What if I want to change investments?
  • Can I get $$$ from the plan?
  • What’s the downside to taking pre-retirement distribution?
  • When does the plan have to make a distribution to me?
  • Do I get a lump sum?
  • How does the spouse of a deceased participant get a distribution?
  • Can an employer terminate my plan?
  • When can I expect my 401(k) benefit?
  • Where to get additional information?

15

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-16
SLIDE 16

IRS Q&A

  • What are rules for CRD?
  • Will IRS issue more guidance on CARES Act?
  • Am I a qualified individual?
  • What is a CRD?
  • 10% excise tax on CRD?
  • When do I pay taxes on CRD?
  • Can I repay CRD?
  • What did the CARES Act do to loans?
  • Are CRDs and loan provisions of CARES Act optional for employers?
  • Does CARES Act provide additional distribution rights?
  • Can administrator rely on self certification?
  • Must plans accept repayment of CRD?
  • How do qualified individuals report CRDs?
  • How do plans and IRAs report CRDs?

16

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-17
SLIDE 17

IRS Q&A

  • What are rules for CRD?
  • Will IRS issue more guidance on CARES Act?
  • Am I a qualified individual?
  • What is a CRD?
  • 10% excise tax on CRD?
  • When do I pay taxes on CRD?
  • Can I repay CRD?
  • What did the CARES Act do to loans?
  • Are CRDs and loan provisions of CARES Act optional for employers?
  • Does CARES Act provide additional distribution rights?
  • Can administrator rely on self certification?
  • Must plans accept repayment of CRD?
  • How do qualified individuals report CRDs?
  • How do plans and IRAs report CRDs?

17

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-18
SLIDE 18

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

IRS Q&A

  • What are rules for CRD?
  • Will IRS issue more guidance on CARES Act?
  • Am I a qualified individual?
  • What is a CRD?
  • 10% excise tax on CRD?
  • When do I pay taxes on CRD?
  • Can I repay CRD?
  • What did the CARES Act do to loans?
  • Are CRDs and loan provisions of CARES Act optional for employers?
  • Does CARES Act provide additional distribution rights?
  • Can administrator rely on self certification?
  • Must plans accept repayment of CRD?
  • How do qualified individuals report CRDs?
  • How do plans and IRAs report CRDs?

18

Administrator may rely upon individual’s certification in regards to qualified individual status, UNLESS administrator has ACTUAL KNOWLEDGE to the contrary

slide-19
SLIDE 19

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

IRS Q&A

  • What are rules for CRD?
  • Will IRS issue more guidance on CARES Act?
  • Am I a qualified individual?
  • What is a CRD?
  • 10% excise tax on CRD?
  • When do I pay taxes on CRD?
  • Can I repay CRD?
  • What did the CARES Act do to loans?
  • Are CRDs and loan provisions of CARES Act optional for employers?
  • Does CARES Act provide additional distribution rights?
  • Can administrator rely on self certification?
  • Must plans accept repayment of CRD?
  • How do qualified individuals report CRDs?
  • How do plans and IRAs report CRDs?

19

Administrator may rely upon individual’s certification in regards to qualified individual status, UNLESS administrator has ACTUAL KNOWLEDGE to the contrary

slide-20
SLIDE 20

KETRA Guidance (Why It’s Important NOW)

  • In Q&A IRS stated Notice 2005-92 principles likely applied in pending IRS

CARES Act guidance to extent substantially similar

  • KETRA Principles to consider:
  • Periodic payments may be treated as “Katrina distributions” (think CRD)
  • However they may NOT be recontributed to an eligible retirement plan
  • Loans treated as deemed distributions NOT “Katrina distributions”
  • Even if plan doesn’t treat distribution as “Katrina distribution” qualified individual

may do so in reporting taxes

  • Plan does NOT fail to satisfy Code because qualified individual’s total “Katrina

distributions” exceed $100,000 (including distributions from IRAs or other eligible retirement plans

  • Suspended loan repayments must resume upon the end of the suspension

period

20

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-21
SLIDE 21

CARES Act Crystal Ball

  • Recent conversation with Brian Graff (ARA, NAPA)
  • A week ago accurately predicted the Treasury guidance just received
  • Pushing for expansion of “qualified individual” to include a spouse losing their

job or experiencing the adverse financial consequences

  • Pushing for clarification of rollovers for RMDs that were made in January
  • Working for additional relief
  • Partial plan termination – perhaps a 12-month safe harbor (positive feedback on

this item)

  • Safeharbor design – keep safeharbor protection even if the contributions are

decreased

  • Funding holiday for defined contribution plan contributions for a year

21

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-22
SLIDE 22

Other Plan Related Considerations During the Time

  • f COVID-19
slide-23
SLIDE 23

Hardship Distributions

  • Most plans offer safeharbor reasons
  • Provides accessibility to plan assets
  • Likely have been amended to include FEMA declared disaster hardships
  • Check FEMA webpage for areas

DOES NOT . . .

  • Eliminate 10% early excise tax
  • Allow for spread of taxation ratably over three-year period
  • Allow for payback into plan to avoid taxation

23

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-24
SLIDE 24

Partial Plan Terminations

  • Reduction in force triggers
  • IRS rebuttable presumption at 20% threshold
  • Consequences: fully vest affected employees
  • Review at year end typically:
  • Eligible employees who had employer-initiated termination by year-end; divided

by

  • The sum of
  • Number of eligible employees at the beginning of the plan year; plus
  • Eligible employees added during the year
  • Furlough verses layoff
  • Recalled by year end?
  • Industry lobbying Congress to make clear that furloughs due to COVID-19 not

counted for purposes of determining partial plan termination.

24

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-25
SLIDE 25

Potentially new definitions of compensation

  • Check with payroll
  • Check against terms of plan

document

  • Amendment needed to effectuate

plans sponsor desire?

Families First Coronavirus Response Act (FFCRA)

  • FFCRA does not distinguish qualified

leave wages from other wages

  • If employee has deferral election in

place, it should apply to qualified wages

  • Qualified sick leave wages
  • Qualified family leave wages

Definition of Compensation

25

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-26
SLIDE 26

Discretionary (match, profit sharing)

  • No legal requirement to amend plan

document

  • No prior notification required (although

recommended)

  • Likely to result in additional 401(a)(4)

nondiscrimation testing at year’s end

  • Potential for unexpected QNECs

Stated (match, profit sharing)

  • Must legally amend the plan document
  • SMM requirement
  • Cannot change until amendment is

adopted

  • Likely to result in additional 401(a)(4)

nondiscrimination testing at year’s end

  • Potential for unexpected QNECs

Reducing/Ceasing Employer Contributions

26

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

slide-27
SLIDE 27

Reducing/Ceasing Employer Contributions

  • Safe harbor plans
  • Have to meet one of the following:
  • Employer is operating at an economic loss as defined in Code section 412(c); or
  • Safe harbor notice provided prior to plan year had statement that plan sponsor

could amend the plan during the plan year to reduce or eliminate the safe harbor contribution

  • Requires plan amendment
  • Requires prior formal notification to eligibles
  • Cannot occur earlier than 30 days after notice to eligibles
  • Triggers ADP/ACP testing for the year
  • Likely to result in additional 401(a)(4) nondiscrimination testing at year’s end
  • Potential for unexpected QNECs – could even eclipse savings of changing the safe

harbor contribution

For Institutional Use. Not for Public Distribution. NFPR-2020-120 ACR# 349187 5/20/20

27

slide-28
SLIDE 28

Disclosures

NFP Corp. is a leading insurance broker and consultant that provides employee benefits, property & casualty, retirement, and individual insurance and wealth management solutions. We have become one of the largest insurance brokerage, consulting and wealth management firms by building enduring relationships with our clients and helping them realize their goals. This material is intended to provide general information only and nothing in it should be acted upon without consultation with qualified professional advisors. Receipt of this material does not create a client relationship between the recipient and NFP. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an

  • ffer to buy or sell any security or to participate in any trading strategy. Any decision to invest according to investment advice provided by

NFP should be made after conducting such investigations as the investor deems necessary and consulting the investor’s own investment, legal, accounting and tax advisors in order to make an independent determination of the suitability and consequences of an investment. NFP and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with NFP of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. This document was produced by and the opinions expressed are those of NFP as of the date of writing and are subject to change. There is no assurance that such results, events or targets will be achieved, and may be significantly different than that shown here. This research is based on NFP proprietary research and analysis of global markets and investing. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable, however NFP does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. Any sectors or allocations referenced may or may not be represented in portfolios of clients of NFP. The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. The use of tools cannot guarantee performance. Past performance is no guarantee of future results. For more information regarding the CARES ACT, please click here. Securities may be offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement, Inc., a subsidiary of NFP. NFPR-2020-120 ACR# 349187 5/20/20

28

For Institutional Use. Not for Public Distribution.

slide-29
SLIDE 29

NFP.com