2020: Quarter 2 Newsletter
How does the CARES Act affect my Plan?
On March 27, the president signed The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law.
If the CARES Act provisions are honored by your plan, they allow eligible participants to request penalty-free distributions of up to $100,000, and qualified loans up to the lesser of $100,000 or 100% of a participant's vested balance for qualifying coronavirus-related reasons.
AFPlanServ recently sent an email to our Plan Sponsors explaining the CARES Act provisions. The email also gave Plan Sponsors until April 27 to opt out of permitting the provisions, including COVID-19 distributions and loans.
If you did not reply, the CARES Act provisions are being permitted from your Plan. If you have any questions, please contact us.
Did you know?
The Internal Revenue Service (IRS) has published final regulations amending the rules governing hardship distributions from 401(k) and 403(b) Plans, pursuant to changes contained in the Bipartisan Budget Act of 2018 (Act). 84 Fed. Reg. 49651.
The following changes became effective Jan. 1, 2020:
- Elimination of 6-Month Suspension
- Elimination of Requirement to First Take Plan Loans
- Expansion of Amounts Eligible for Hardship Distributions
- Casualty Loss Expenses Not Tied to a Disaster
- New Withdrawal Reason – Federally-Declared Disaster Event
- Catch-all “Facts and Circumstances” Test Eliminated
Please contact us with any questions.
Deadline Extended for Plan Document Restatement
The IRS has extended the deadline for all organizations sponsoring a 403(b) Plan to “restate” their Plan documents onto an IRS-approved Plan. The new deadline is June 30, 2020.
Restatement to an IRS pre-approved Plan gives you, the Plan Sponsor, reliance that the provisions in the pre-approved Plan are compliant with IRS rules and regulations.
Please note, all 403(b) Plans under AFPlanServ administrative services have already been amended and restated as of Sept. 1, 2017, to operate under a pre-approved Plan.
A copy of the Volume-Submitter pre-approved Plan Document was provided to all groups in mid-2017, along with an amended Plan Adoption Agreement. If you need a copy of your amended Plan document or are unable to locate any other plan documents, please contact AFPlanServ at 866-560-6415.
The SECURE Act and You—Key Takeaways
The following are key provisions of The Setting Every Community Up for Retirement Enhancement Act (SECURE Act):
Birth and Adoption:
Prior to the SECURE Act, there was no special tax relief for plan distributions for childbirth or adoption expenses incurred within a year following birth or legal adoption. Under the SECURE Act (effective after Dec. 31, 2019) for defined contribution plans (and IRAs), withdrawals of up to $5,000 for eligible childcare and adoption expenses are permissible and not subject to the 10% early withdrawal tax. These amounts may also be recontributed back to a plan (or IRA). Like hardship withdrawals, they are treated as ineligible for rollover, and are not subject to the mandatory 20% withholding. Instead, 10% withholding applies, unless opting out.
Required Minimum Distribution (RMD) age:
Previously, distributions from an eligible employer plan must be made by April 1 of the calendar year following the year in which the employee turns age 70-1/2 (or retires, if later and not a 5% owner). Under the SECURE Act, the RMD age is now 72. For employees who work past age 70-1/2, there was no change to the required actuarial adjustment for defined benefit plans (which was intentional). This change applies to employees who turn age 70-1/2 after December 31, 2019; the old rule continues for employees that have already reached age 70-1/2 prior to such date.
500 Hours Eligibility:
Prior to the SECURE Act, part-time employees could be excluded from a plan if they do not reach 1,000 hours in any 12-month eligibility computation period. Under the SECURE Act, for plan years beginning after December 31, 2020, long-term, part-time employees must be eligible to participate in a 403(b) plan once they have (i) reached age 21 and (ii) have worked at least 500 hours in three consecutive 12-month periods (beginning in 2021). For vesting service, a year of service is a 12-month period during which the part-time employee earned at least 500 hours of service. There is nondiscrimination and top-heavy plan relief, and no requirement to provide any match or profit-sharing contribution to these workers.
These provisions, along with portability of lifetime income options and changes to in-service distributions for governmental 457(b) Plans, are design choices that will be permitted under your Plan(s). However, you, as the Plan Sponsor, do have the option to opt out of permitting any/all of these provisions.
If you wish to opt out, please notify AFPlanServ by June 22, 2020, via email to WG-Annuity-AF-PlanServ@americanfidelity.com or by phone at 866-560-6415. If you do not notify AFPlanServ by this date, you are agreeing to permitting these plan design changes.
Frequently Asked Questions
Q: Are plan participants that are impacted by COVID-19 able to access their 403(b) and/or 457(b) retirement funds?
A: Yes. If permitted by the plan, qualified individuals may withdraw, penalty-free, up to $100,000 between January 1, 2020, and December 31, 2020.
Q: Are retired or terminated participants eligible for a COVID-19 Related Distribution (CRD)?
A: Yes. If permitted by the plan, qualified individuals who are retired, or terminated participants, are eligible for CRDs.
Plan Reminders
Each year, AFPlanServ provides a Sample Eligibility Notice to help satisfy the Universal Availability requirements.
You may use it as a template for your own custom notification or distribute the sample in its entirety.
Please check the Operational Guidelines to ensure you are adhering to the items listed. If you have any questions, please contact us.
If you need more information about your role as the Plan Sponsor, we're happy to help!