The $2 trillion stimulus bill, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, addresses a range of economic and health-related issues resulting from the COVID-19 pandemic. As your retirement plan fiduciary, the MERS Retirement Board evaluated the impact to your retirement plans and took the following actions to assist employers and plan participants.
The CARES Act created a new in-service distribution type called a “coronavirus-related distribution” (CRD). The provision is similar (but not identical) to relief provided in prior years for natural disasters, and is now available to eligible MERS Defined Contribution, 457 Program, and IRA participants.
- To be eligible, the distribution must be made to a “qualified individual” – meaning a person who is diagnosed with the disease, has a spouse or dependent who is diagnosed, or has experienced adverse financial consequences as a result of the disease. Participants may self-certify their eligibility.
- In addition, defined contribution participants must also comply with the otherwise applicable in-service distribution rules, which require that an in-service distribution not be issued prior to the participant turning age 59½.
- Unless the participant elects to pay the income tax all in 2020, they should include a CRD in their taxable income over three years (in 2020, 2021 and 2022). Note: Regardless of how choose to pay the income tax, MERS will only report one 1099R for 2020.
- The distribution must be made on or after Jan. 1, 2020, and before December 31, 2020. The maximum amount for an individual is $100,000 from all plans and IRAs.
- The mandatory 20% withholding and requirement to provide a 402(f) notice, which normally apply to eligible rollover distributions, are waived for a CRD.
- To enable participants to restore their retirement savings, the law allows the distribution to be repaid to the plan or IRA during the three-year period beginning on the day after the date the distribution is made. In that case, the repayment is treated similar to a rollover.
Resource: Coronavirus-Related Distribution Application (form MD-008-c19)
For plans that allow loans to participants, for new loans to qualified individuals between March 27 and September 22, 2020, the maximum loan amount was increased to 100% of the vested account balance or $100,000, whichever is less. (Previously capped at 50% of vested account balance or $50,000.) For existing loans, payments due between March 27, 2020, and December 31, 2020, can be suspended for one year. If participants do not make payments during this time, the loan will be re-amortized upon the expiration of this period.
To be eligible for the loan relief described in this section, a participant must meet the same eligibility criteria noted above for CRDs. As of right now, participants may self-certify eligibility, pending further guidance. (The self-certification is not specific to loans, but most are interpreting it to allow it.)
Resource: MERS Defined Contribution & 457 Loan Addendum (form MD-071)
Required Minimum Distributions
RMDs to be paid during 2020 are waived for all types of defined contribution plans, including 401(a), 401(k), 403(b), and governmental 457(b) plans, as well as IRAs. This allows RMD-eligible participants to preserve their retirement savings for this period. However, no RMD waiver is available for defined benefit plans.
Rehire Retiree Guidelines
To assist employers in filling open positions due to labor shortages or increased needs arising from COVID-19 related factors, there will be a temporary adjustment to MERS’ retire rehire guidelines. For retirees whose effective date of retirement was between January 1, 2020, and April 1, 2020, the 60-day separation requirement will be waived. This short time period is intended only to provide relief to those retirees who retired when the crisis began.
Also, retirees who return to work due to employer need will not have their pension benefits suspended if they exceed the 1,000 hour limit during 2020. This waiver of this limitation will expire at the end of 2020.
Temporary Employer Workforce Accommodations
To offer additional flexibility at this time, MERS will accept and administer temporary modifications to definitions of day of work and compensation. To modify these provisions, please refer to the Temporary Modification of Benefit Provisions (form DB-c19).