Find out how this coronavirus-related guidance affects pension plans.
Learn how these new rules apply to withholding requirements.
Discover the limits on coronavirus-related distributions under the new guidance.
Learn more about how employers may treat coronavirus-related distributions under their retirement plans.
In Notice 2020-50, the IRS recently provided guidance on “coronavirus-related distributions” from retirement plans under Section 2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Fiducial has the details employers may need to know, so read on!
Pension plans
The Notice points out that Sec. 2202 doesn’t change the rules for when plan distributions may be made from employer retirement plans. Thus, a qualified pension plan may not make a distribution before an otherwise permitted distributable event just because the distribution, if made, would qualify as coronavirus-related.
Further, a pension plan may not make a distribution under a distribution form that isn’t a qualified joint and survivor annuity without spousal consent just because the distribution, if made, could be treated as coronavirus-related.
Coronavirus-related distributions and withholding rules
If an employer’s retirement plan deems a distribution as coronavirus-related, the rules for eligible rollover distributions under the Internal Revenue Code (IRC) do not apply to the distribution. So, the plan has no requirement to offer the qualified individual a direct rollover with respect to the distribution. The plan administrator also has no requirement to provide a Sec. 402(f) notice.
In addition, the plan administrator or payor of the coronavirus-related distribution has no requirement to withhold an amount equal to 20% of the distribution, as usually required. However, voluntary withholding requirements apply to a coronavirus-related distribution.
Limits on coronavirus-related distributions
Under the CARES Act, the total amount of distributions treated by an employer as coronavirus-related under its retirement plans with respect to a qualified individual cannot exceed $100,000. For purposes of this rule, the term “employer” means the employer maintaining the plan and those employers required to be aggregated with the employer under the IRC.
A plan won’t fail to satisfy any requirement of the IRC merely because a qualified individual’s total coronavirus-related distributions exceed $100,000. This includes distributions from IRAs or other eligible retirement plans maintained by unrelated employers.
Distribution treatment
An employer may choose whether, and to what extent, to treat distributions under its plans as coronavirus-related. So, for example, an employer may choose to provide for these distributions but choose not to change its plan loan provisions or loan repayment schedules.
The employer (or plan administrator) may develop any reasonable procedures for identifying which distributions they treat as coronavirus-related under its retirement plan(s). However, if, under an employer retirement plan, they deem any distribution of an amount subject to the IRC as coronavirus-related, the plan must remain consistent in its treatment of similar distributions.
Consideration must be given to the amount of the distribution in determining the $100,000 limit on coronavirus-related distributions made under the employer’s retirement plan(s). Even if a distribution doesn’t meet the requirements to be treated as eligible under a plan, a qualified individual may treat a distribution that meets the coronavirus-related distribution requirements as eligible on his or her federal income tax return.
Key points
We’ve included just a few of the key points made in Notice 2020-50. Need more information? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.