CARES Act: New Retirement and Employee Benefit Provisions

What You Need to Know and What You Need to Do

Insight By
Mike Iley
Retirement Plans

The third law aimed at providing relief to those negatively affected by COVID-19 was signed into law on March 27, 2020. The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) offers a wide range of assistance to businesses and individuals.  

Here’s a summary of the law’s impact on employee benefit plans and checklists for what you should consider doing as a result. In addition, we’ve summarized the recently established “Paycheck Protection Program (PPP),” designed to help small businesses keep workers employed and on the payroll.

Keep in mind, many of the new provisions are optional. Plan sponsors aren’t required to include them in their plans. However, if offered, they must be offered on a non-discriminatory basis.

Defined Contribution Plans

401(k), 403(b), and 457(b)

Special COVID-19 Related Withdrawals (optional)

This new type of in-service distribution option gives access to employees who are still employed while minimizing their tax consequences. The provision includes any distribution made between Jan. 1, 2020 and Dec. 31, 2020 (but not including Dec. 31, 2020).

  • Diagnosed with COVID-19 via CDC-approved test
  • Spouse or dependents diagnosed with COVID-19
  • Experiencing adverse financial consequences as a result of COVID-19, such as:
    • being quarantined
    • laid off
    • furloughed
    • forced to close a business they own or operate due to COVID-19
    • reduced hours
    • unable to work due to loss of childcare

Highlights of the new withdrawal provision include:

  • Early withdrawal penalty waived. Individuals can withdraw up to $100,000 within the 2020 calendar year with no 10% early withdrawal penalty (waived).
  • Tax withholdings waived. The typical mandatory 20% federal income tax withholding is waived because these special distributions are not treated as eligible rollover distributions.
  • Flexible repayment. Ability to repay the money back into the account in one or more payments within three years from the date of the distribution, unless the participant elects otherwise.
  • Flexible tax payments and timing. While distribution must be included in taxable income, employees can spread the income tax owed into equal installments over three years.
  • Low hassle. Compliance and administration of new provision is fairly easy – employees can self-certify that they meet the eligibility requirements and little tracking required by Plan Sponsor.

Expanded Loan Availability, Limits, and Payment Options

  • Increased maximum loan amount. Currently, loans are capped at the lesser of $50,000 or 50% of the participant’s vested balance. Now, for up to 180 days from March 27, 2020, participants can take a loan for the lesser of $100,000 or the full amount of their vested benefit.
  • More time to repay new loans. Repayment of new loans taken between March 27, 2020 and Dec. 31, 2020 can be postponed for one year from the date the payment would have otherwise been due.  However, Interest will continue to accrue.
  • Postpone repayment for existing loans. Participants with a current loan due on or before Dec. 31, 2020 will gain an extra year to repay it.
  • Temporary suspension of the required minimum distribution (RMD). The requirement for participants to take a partial distribution beginning at age 70-1/2 will be suspended for 2020 but will be reinstated for 2021. If a participant already turned 70-1/2, and has not yet taken the distribution, then no distribution is required in 2020. If an RMD was taken in 2020, the participant could choose to roll it back into the plan and defer paying taxes on it.

Apply rules now and amend documents later. The deadline for amending plans to reflect the adoption of participant relief is the last day of the first plan year beginning on or after Jan. 1, 2022 (for calendar year plans it is Dec. 31, 2022).

Defined Benefit Plans

  • Funding relief. Plan sponsors with single-employer pension plan contributions due during 2020 can postpone payments to Jan. 1, 2021.
  • Option to use AFTAP. Plan sponsors of single-employer DB pension plans have the option to use the 2019 Adjusted Funding Target Attainment Percentage (AFTAP) funding status when determining whether the plan imposes benefit distribution restrictions, typically imposed when funding status falls below 80%.

Health Care and Other Benefits

The CARES Act also provides relief through health care coverage, employee leave programs and educational assistance programs, as follows:

  • Expanded testing. The coverage offered through the Families First Coronavirus Response Act (FFCRA) has been expanded to include coverage of coronavirus testing services provided out-of-network at a rate the provider must publicly post on its website or at a negotiated rate.  
  • Vaccine coverage. COVID-19 vaccinations (once available) will be provided at no cost to the participant (grandfathered health plans as defined by the ACA are excluded).
  • HSA Telehealth Safe Harbor. Telehealth (and remote care) services can be covered under high deductible health plans (HDHP) before the deductible is met without violating federal rules for HDHPs paired with an HSA. Permitted for plan years beginning on or before Dec.31, 2021.
  • Repeals HSA/FSA exclusions.  The Act repeals exclusions for coverage of over the counter (OTC) drugs with no prescriptions for health savings accounts (HSAs), flexible spending accounts (FSAs) and Archer medical savings accounts (MSAs). In addition, menstrual care products are now considered eligible expenses under these accounts and can be purchased retroactively to Jan. 1. 2020 without losing the tax advantages. Applies to expenses incurred after Dec. 31, 2019.
  • HSA contribution extension. Individuals may make contributions to HSA (or Archer MSA) for 2019 at any time up to July 15, 2020.
  • Expanded Education Assistance. From Mar. 28, 2020 through Dec. 31, 2020, employers can contribute up to $5,250 for each employee, tax-free, toward tuition and textbook assistance combined with student loan repayment assistance (meaning employee does not include that amount as taxable income). Payments may be made to the employee as a reimbursement or directly to the lender.
  • Tax credit advances. Employers may be eligible to receive tax credit advances for both emergency-paid sick leave and emergency FMLA leave, capped at the same amount as tax credits specified in FFCRA. Please see our previous article, IRS Issues Guidance on Tax Credits for Coronavirus Paid Leave, for more details.
  • Access to emergency FMLA for rehired workers. Emergency FMLA leave is available to rehired workers if they were laid off on or after March 1, 2020 and worked at least 30 days of the last 60 calendar days before the layoff.
  • HIPAA updates. While there are numerous changes to HIPAA, three worth noting include:
    • New nondiscrimination provision preventing discriminating related to any protected health information received by employer or other entity, especially if the use or disclosure violates HIPAA.
    • New easier to understand HIPAA Privacy Practice documents are going to be required on or after one years from when CARES Act was enacted.
    • Guidance to be issued by Health and Human Services for how to comply with HIPAA during a declared public health emergency.
  • Extension of due dates. ERISA has expanded the permission of due date delays, such as for multi-employer plan contributions, to include situations of declared public health emergencies, in addition to terrorist or military action.

Paycheck Protection Program (PPP)

A Way to Ensure Ongoing DC Contributions

As an extension of the SBA 7(a) program, the PPP is a new Small Business Loan made available that helps businesses keep their workforce employed during the COVID-19 crisis. For Plan Sponsors this translates as an opportunity to ensure employer and employees can continue to make contributions to their retirement plan.

  • Loan forgiveness. Available through June 30, 2020, this program will forgive loans if employees are kept on payroll for the eight weeks and at least 75% of the money was used for payroll, and remaining used for rent, mortgage interest and/or utilities. Forgiveness is based on the employer maintaining or promptly rehiring employees and maintaining pay levels— being reduced if full-time headcount declines or salaries/wages decrease.
  • Helpful terms. No collateral or personal guarantees are required. Interest is no more than 4% and repayment, if required, can be deferred for six months and paid back over a period of ten years. You don’t have to show that you can’t borrow the money elsewhere.
  • No fees. Neither the government nor lenders will charge small business any fees.
  • Applying is easy. You can apply though any existing SBA 7(a) participating lender, federally insured depository institution or credit union, and Farm Credit System institution.
  • Eligibility. Small businesses affected by COVID-19 that are eligible include:
    • Those with less than 500 employees (including sole proprietorships, independent contractors and self-employed individuals)
    • Private non-profit organizations
    • 501(c)(19) Veterans organizations
  • Note: If less than 500 workers, hospitality and food businesses with more than one location may be eligible at the store and location level. Certain industries may qualify even if they have over 500 employees if they meet the SBA’s size standards for those industries.

    Plan Sponsor "To-Do" Items

    • Talk to your defined contribution provider to determine what action is required on your end to begin allowing COVID-19 related withdrawals and expanded loan provisions.
    • If you have a pension plan, determine if changing your funding plan for the year makes sense for your overall cash flow strategy.
    • Review the paid leave provisions of the FFCRA for the details of the emergency FMLA provisions.
    • Make sure to communicate the various healthcare provision updates to your employees.
    • Consider applying for the PPP, as it may provide the cashflow relief your organization needs to weather this crisis. For more information please visit the Small Business Administration (SBA) website.

    Insight By
    Mike Iley
    Managing Director
    Subscribe to our Insights
    You have been signed up to receive our insights in your inbox! We'll keep you up-to-date with our best insights and information.
    Oops! Something went wrong while submitting the form.
    File Number


    Retirement Plans
    Published on

    November 15, 2021

    updated on

    November 15, 2021


    This article is for educational purposes only. The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that LoVasco Consulting Group is not engaged in rendering tax or legal services. If tax or legal advice is required, you should consult your accountant or attorney. LoVasco Consulting Group does not replace those advisors.

    Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered broker dealer and Investment Advisor, member FINRA / SIPC. LoVasco Consulting Group is independently owned and operated.

    Recommended Next

    Return to Insights Page

    Ready to talk to a consultant?

    Begin maximizing your benefits.

    ©2020 LoVasco. All rights reserved.

    LoVasco Consulting Group and their agents are presently licensed to sell traditional life insurance in Michigan as a resident producer and numerous other states as a nonresident producer. This site is not intended as an offer to sell securities, which may be done only after proper delivery of a prospectus and a client suitability review. Proper state registration is mandatory prior to conducting business in any state. Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered broker dealer and Investment Advisor, member FINRA / SIPC. Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. LoVasco Consulting Group is owned and operated independently from M Holdings Securities, Inc. LoVasco Consulting Group is a member of M Financial Group. Please click here for further details regarding this relationship.