Your action is required to enact special loan provisions fo the CARES Act: As we previously communicated, the CARES Act (The Act) was signed into law on March 27, 2020 and included several provisions that impact your retirement plan. Among them are provisions that expand the maximum loan amount a qualifying participant can take from his/her account and the ability for participants who currently have outstanding loans, or who take new loans between now and the end of the year, to suspend loan payments for the remainder of 2020 and extend the loan duration and amortization of their loan by 12 months.
Below is a brief summary of each of these new options.
Increase in Maximum Loan Amount:
Under current rules, the maximum loan amount any individual can take from a qualified retirement plan is the lesser of 50% of his vested account balance or $50,000 reduced by the highest outstanding principal loan balance during the previous 12 months. Under The Act, from March 27, 2020 through September 23, 2020, the maximum loan amount for qualifying participants increases to the lesser of 100% of his/her vested account balance or $100,000 reduced by the highest outstanding principal loan balance during the previous 12 months.
Loan Payment Suspension:
The Act includes a provision that allows qualifying participants to suspend loan payments from March 27, 2020 through December 31, 2020. In addition, The Act provides that, if the loan is suspended, the loan duration can be extended for 12 months beyond the original due date of the loan. Adjusted loan payments for these loans will begin as of the first payment date after December 31, 2020. The new loan payment for these loans will be derived by re-amortizing the loan to extend its duration by 12 months and by including accrued interest that relates to suspended payments.
PLEASE KNOW, THERE IS A POSSIBILITY THAT ADDITIONAL GUIDANCE REGARDING THE RE-AMORTIZATION OF SUSPENDED LOANS MAY BE FORTHCOMING AND MAY DIFFER FROM THE ABOVE INTERPRETATION. WE WILL COMMUNICATE ANY ADDITIONAL GUIDANCE IF IT DIFFERS FROM THE ABOVE.
Qualifying participant:
In order to be eligible for either of the loan provisions referenced above, a participant must be a qualifying participant. A qualifying participant is defined as someone: 1. who is diagnosed with the virus (via test approved by CDC), 2. whose spouse or dependent is diagnosed with virus (via test approved by CDC), or 3. who experiences adverse financial consequences as a result of:
- quarantine
- furlough
- laid off
- hours reduced
- unable to work due to childcare
- closing of business
- or other factors as determined by the Secretary of the Treasury
ACTION REQUIRED: It is important to note that the adoption of either or both provisions is optional for plan sponsors. As such, please contact your Client Service Specialist (CSS) if you are interested in amending your plan to add either or both provisions. Once your election to add the provision(s) has been received, your CSS will provide you with the necessary election forms to share with qualifying participants who are interested in taking advantage of these provisions.
If you elect to add this provision, a plan amendment for CARES Act Distributions will be required by the last day of the plan year that begins in 2022. We will be preparing this amendment at a later time and completely free of charge.
Interested in learning more? Contact us at 1-866-585-PLUS (7587).
