At AFPlanServ, we continue to closely monitor the ever-evolving COVID-19 pandemic while keeping the health and welfare of our Plan sponsors, Plan participants, and our own employees a top priority.
Our offices are following all local and national mandates for social distancing and working remotely from a secure location. We want to assure you that our goal remains to minimize disruptions, and most importantly, assure our Plan Sponsors and Plan Participants that our top priority is to carry out our core business functions and continue to deliver on our commitment to provide exceptional administrative services to our 403(b) and 457(b) Plan Sponsor clients.
We greatly appreciate the trust you’ve placed in AFPlanServ as your 403(b) and/or 457(b) administrative services Provider. We thank you for your patience as we continue to work diligently to ensure our Plan administrative services remain uninterrupted and that you continue to receive consistent, reliable service during this difficult time.
Rest assured we are prepared to take any actions necessary to assist our customers.
To learn more about the CARES Act relief provisions, we’ve created a list of FAQs regarding COVID-19 distributions, loans, and other information. You may view those FAQs below.
If you have questions regarding your 403(b) and/or 457(b) Plan, or about our administrative services, please contact us at (866) 560-6415. If we are unavailable to take your call, please leave a message and we will return your call in the order in which it was received.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law by President Trump on March 27, 2020, includes relief to qualified retirement plan participants impacted by the COVID-19 pandemic, notably in the form of expanded distribution and loan provisions for qualifying individuals, as well as some administrative relief for plan administrators.
The CARES Act includes several key provisions that will positively impact retirement plan participants and plan sponsors by relieving some restrictions for withdrawals, loans, and the waiver of Required Minimum Distributions for 2020.
COVID-19 Related Distributions(“CRD”)*
*Subject to plan and/or Provider’s product rules
The retirement plan withdrawal limit is increased to $100,000 across all 403(b) and/or 457(b) Plans
10% early distribution tax penalty waived, and 20% federal tax withholding delayed
Option to have distribution taxed over three years with ability to recontribute within three years regardless of the annual contribution limit
Qualification for a CRD may be provided by participant self-certification
COVID-19 Related Loans*
*Subject to plan or Provider's product rules
Loan limit increased from $50,000 to $100,000,or total vested account balance if less
Loan payments due between March 27,2020, and year-end may be delayed for one year
Qualification for COVID-19 related loans may be provided by participant self-certification
2020 Waiver of Requirement Minimum Distribution
All RMDs due in 2020 are waived
What types of retirement plans fall under the CARES Act provisions?
Eligible plans for the provisions of the CARES Act for qualified retirement plans include: (1) individual retirement accounts and annuities (IRAs); (2) qualified pension, profit-sharing, or stock bonus plans (including 401(k) plans); (3) qualified 403(a) annuity plans; (4) 403(b) annuity contracts and custodial accounts; and (5) governmental section 457(b) deferred compensation plans.
Are CRDs and loans optional at the Plan Sponsor’s discretion?
Yes, CRDs and loans are optional. However, plans under AFPlanServ administrative services will permit CRDs and loans unless the Plan Sponsor has opted-out of permitting or notifies AFPlanServ of their decision to opt-out.
Can I permit some of the provisions and not others?
Yes. A Plan Sponsor may permit CRDs and not loans, or vice-versa.
Are our plan participants that are impacted by COVID-19 able to access their 403(b) and/or 457(b) retirement funds?
Yes. If permitted by the plan, qualified individuals may withdraw, penalty free, up to $100,000 between January 1, 2020, and December 31, 2020.
Who is a "qualified individual" for the purposes of eligibility to request a CRD and loan?
A "qualified individual," for the purposes of eligibility to request a CRD and/or loan, or to make such a withdrawal, is any participant of the plan for which any of the following applies:
Participant has been diagnosed with COVID-19; or
Participant’s spouse or dependent(s) have been diagnosed with COVID-19; or
Participant is experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19.
How does a plan participant request a CRD or loan from his or her 403(b) and/or 457(b) account?
If permitted by the plan, a participant will need to request and complete the proper paperwork from their 403(b) and/or 457(b) Provider, indicating they are a qualified individual and making the request due to COVID-19. The paperwork will then need to be reviewed and approved by the Plan Sponsor, or by AFPlanServ if we are providing administrative services.
Does the participant need to provide verification that he or she qualifies for a CRD or loan?
No, the CARES Act permits a Plan Sponsor or a third-party administrator, if applicable, to rely on the participant’s self-certification of their eligibility. AFPlanServ will permit self-certification by the participant.
Do participants have to pay income taxes and a tax penalty for early withdrawal on a CRD?
The CARES Act permits qualified individuals who receive a CRD to pay tax on the income from the distribution over the next three years and repay that amount tax-free back into the plan over the next three years. Those repayments would not be subject to the retirement plan contribution limits. Federal income tax withholding is not required on COVID-19-related distributions. The CARES Act also waives the 10% early withdrawal penalty tax under Internal Revenue Code Section 72(t) on early withdrawals up to $100,000 from a retirement plan or IRA for a qualified individual.
Can participants take more than one CRD?
Yes. If permitted by the plan, a qualified individual may take multiple distributions if the distributions are taken by December 31, 2020.
Are retired or terminated participants eligible for a CRD?
Yes. If permitted by the plan, qualified individuals who are retired or terminated participants are eligible for CRDs. Distributions for these participants due to other distributable events such as termination from employment, total disability, etc. may also apply. It’s important to note that if a participant wishes to request a distribution due to COVID-19, he or she must indicate this on the request. Otherwise, normal distribution rules will apply.
What is the relief for Required Minimum Distributions (RMDs)?
The CARES Act waives the requirement for any RMD that is required to be paid in 2020. This includes an individual’s first RMD, which is attributable to 2019 (not paid by January 1, 2020). If an RMD has already been received during 2020, the participant may roll it over and defer paying taxes, including rolling back into the plan. We expect the IRS to extend the 60-day rollover period.
For example, if a participant turned 70½ in 2019 and has a Required Beginning Date of 4/1/20:
But has not yet taken the distribution, then no distribution is required in 2020 (for the 2019 distribution year); or
Has a distribution taken after 12/31/19, it is eligible for the waiver for 2020 and the amount can be rolled over; or
The distribution was taken in 2019, no relief is available.
How does this impact RMDs for those who have been receiving them each year?
An RMD is not required for the 2020 tax year.
What is the change to the loan limit and criteria for a COVID-19 loan?
If permitted by the plan and subject to the retirement account contract, the CARES Act also increases the current retirement plan loan limit to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. This only applies to loans made between March 27, 2020, and September 23, 2020, (180 days following enactment of the CARES Act) and is only for qualified individuals.
Are the COVID-19 loan provisions optional?
Yes, we believe the loan provisions are optional. While it’s clear that the increase in the loan limit is optional, it’s less clear on the one-year suspension of repayments and on the one-year extension of the term of a loan. Some experts have suggested the statutory language appears to indicate the suspension and term extension are required. The IRS, however, interpreted similar language that was part of the Katrina Emergency Tax Relief Act of 2005 (KETRA) as optional (see IRS Notice 2005-92). We are hoping to receive guidance from the IRS similar to Notice 2005-92, and we also expect related issues under DOL’s jurisdiction to be addressed as they were in Notice 2005-92.
Can participants take more than one COVID-19 loan?
Yes. If permitted by the plan and by the Provider’s loan agreement, a qualified individual may take multiple loans if the loan does not exceed $100,000, or 100% of the vested account balance and is taken by December 31, 2020.
Does the rule providing that the maximum dollar loan amount is reduced by the principal paid on any loans in the past 12 months (i.e., the difference between the highest outstanding balance and the current balance of a loan) apply?
Yes, that rule still applies. The CARES Act only increased the limit on participant loans for qualified individuals. It did not change the calculation of the maximum permissible loan under IRC §72(p), so the calculation would be $100,00 minus the amount of principal repaid in the prior 12-month period. For example, suppose an employee who had a $200,000 account balance took a $40,000 loan in 2019 and repaid the entire loan in January 2020. The maximum the employee could borrow under the CARES Act would be $60,000 ($100,000 - $40,000 principal repaid in the prior 12 months).
Can payments be deferred on existing loans?
Yes. If permitted by the plan, scheduled loan payments due between March 27, 2020, (the enactment of the CARES Act) through December 31, 2020, may be delayed for up to one year. Interest will continue to accrue during the period and the plan will extend the term of the loan for up to one year. Plan Sponsor or third-party administrator approval may be required by some Providers.
Does the extension of the loan repayments expire on 12/31/2020, meaning it’s only a year applied retroactively back to 1/1/2020?
The law provides that any loan repayments due between March 27, 2020, and December 31, 2020, can be delayed. For example, a loan repayment that would be due in December 2020 could be extended to December 2021.
If a plan does not already allow loans and the client wants to add loans temporarily due to COVID-19, do they have to amend the plan to allow loans, then amend to remove them? Or can they add them temporarily as part of the COVID-19 amendment?
This can be handled as part of the effective date of the amendment. For example, the amendment could provide: “For the 180 day-period beginning on March 27, 2020, the plan permits loans in accordance with the following provisions: ...”
Can a participant request a COVID-19 loan if he or she currently has an outstanding loan?
The CARES Act only increases the maximum loan, but it does not force a plan sponsor or investment Provider to change its existing loan program. Therefore, a participant would not be able to request an additional loan until the existing loan has been repaid unless the plan sponsor amends the plan to allow for more than one loan at a time and the Provider’s contract permits.
How will AFPlanServ handle COVID-19 loans?
If permitted by the plan, and the participant’s investment Provider is an approved Provider under the plan, COVID-19 loans will be approved based on the provisions as stated in the CARES Act. This will also include approval of deferred loan payments for up to one year.
Does the plan(s) have to be amended to account for the CARES Act changes to permit CRDs or loans?
If permitted by the plan, the CARES Act provisions may be implemented immediately, and the plan must be formally amended for those new options no later than December 31, 2024, for governmental plans. AFPlanServ will assist its Plan Sponsors with the completion of the required amendments.
If a plan does not permit CRDs or loans, will an amendment still be required?
The IRS should be providing guidance on implementing the relief, but generally a plan must eventually be amended to reflect its operation. Whether an amendment is needed will depend on what the Plan Sponsor does in operation and what the current plan provisions provide. It’s possible the IRS will issue sample amendments similar to what they did in 2009 (see IRS Notice 2009-82). But ultimately, the terms of the plan will need to reflect actual operation of the plan.