David I Gensler, MSPA, MAAA, ASEA
I thought that the most important thing that I could do with this month’s newsletter is to provide you with an update of any retirement related legislation as it moves through Congress.
Though negotiations are not over, on March 22nd Senate Majority Leader Mitch McConnell (R-KY) released a revised version of the Coronavirus, Aid, Relief and Economic Security (CARES) Act.
The legislation would waive Required Minimum Distributions (RMDs) for calendar year 2020 for Defined Contribution plans (401(k), 403(b), 457(b) & IRAs). The legislation also includes special rules regarding the waiver period to hold harmless those individuals (and plans) that took advantage of the RMD waiver for 2020.
Hardship and Loan Rules
The revised version contains language from the original draft which waives the 10% penalty tax on early withdrawals up to $100,000 from a retirement plan or IRA, for participants or their family members impacted by the COVID-19. It permits those individuals to pay tax on the distribution ratably over a three-year period, as well as allowing them to repay that amount tax-free back into the plan over three years.
It also doubles the current retirement plan loan limits to be the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. What if your plan does not currently allow for plans loans and/or hardship distributions? Normally, you would need to sign and date a plan amendment before effectuating any of these sorts of changes. Obviously, we are not in normal times. Accordingly, retirement plans would be permitted to adopt these rules immediately, even if the plan does not currently allow for hardship distributions and loans.
In the meantime, in a letter to Congress, the American Retirement Association (ARA), along with its two dozen related trade organizations is urging Congress to provide immediate relief to retirement plan sponsors, participants and retirees. In addition to requesting many of the same relief items that are already part of the proposed CARES Act, the ARA went a bit further requesting relief for defined benefit plans.
To assist DB plans with this situation, the organizations call for:
- Freezing the interest rate at pre-COVID-19 pandemic levels;
- Stabilizing contribution rates by extending and narrowing the interest rate collar;
- Extending quarterly and final contribution due dates; and
- Extending dates for making all funding balance elections.
Also recommended is a temporary pause in single-employer PBGC premiums to allow businesses to use their capital to weather the COVID-19 crisis. “Congress should remove PBGC premium obligations for plan sponsors for 2020 and consider reducing premiums for subsequent years,” the letter states.
I understand that many of the above points are highly technical. Suffice it so say that they would provide overall funding relief for employers that sponsor defined benefit or cash balance pension plans.
Based in part on articles from the March 23rd National Association of Plan Advisors