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Coronavirus-Aid-Relief-and-Economic-Security (CARES Act) FAQ

  • 2020-04-14
  • Author: Heather Ramsay

We have compiled a list of Frequently Asked Questions regarding retirement plans in light of the national response to COVID-19. As always, if you have specific questions regarding your retirement plan please do not hesitate to reach out.

Can we change or stop our company contribution?

Discretionary Match – if your company has a “discretionary” match, you can change the formula at any point including stopping the match. Such a change does not require any participant notice though managing the message is still a critical component of your plan.

Stated Match – if your plan’s adoption agreement has a specific formula, it can be amended to either a discretionary or revised, though will require both an amendment and a notice to your employees. This process can take 30 to 60 days depending upon your provider and requires notification to your employees.

Safe Harbor Match – Safe Harbor match formulas can also be removed from the plan, though these also require plan amendments and notification to employees. This process can take 30 to 60 days depending upon your provider and requires notification to your employees

If I change my match or employer contribution, what other ramifications should I consider?

If your match is calculated by your payroll provider, please be sure to update any formula or contact your payroll provider for assistance.

If your plan is currently Safe Harbor, this maneuver will require the plan to complete non-discrimination testing for the plan year. The safe harbor contributions already allocated can be considered for non-discrimination testing purposes.

While changing a match formula is allowed, it is important to consider the messaging to your team members as saving for their future should continue even without any company contribution.

What other options do we have with regard to reducing cost?

Forfeiture Utilization – be sure to use all company forfeitures to fund plan expenses in the current year.

Revisit your small balance force out provisions — many plans have the ability to recoup unvested match or profit-sharing dollars to terminated employees. Unvested monies in participant accounts only move to the forfeiture account upon a distributable event. Using the “force out” mechanism for small balances (terminated under $5000) will help move these dollars into the forfeiture account so that you can offset plan expense or future company contributions.

Plan Audit – should your plan be subject to this annual requirement, consider passing the cost onto the plan which would reduce company expense.

What is the impact to our plan should we terminate or furlough employees?

A partial plan termination is determined after the end of the year if your eligible population changes by 20% or more. As such, the impacted population would have an accelerated vesting event meaning this group would be 100% vested rather than follow any vesting schedule in place.

Is a furloughed employee eligible for a distribution from the plan?

While this can be considered a “grey area” in the IRS regulations regarding Retirement Plans & furloughs, generally speaking, a furlough is not considered a separation of service or a distributable event especially if there is an expectation that the employee will return in the future should conditions improve. This type of determination may require the assistance of ERISA counsel.

What impact does a furlough have on participant loans?

Employers have already begun to furlough employees as opposed to terminating employment. IRS regulations discuss the impact that a furlough has on participant loan requirements. Employees with plan loans who are placed on unpaid leave of absence may forego making loan payments during the leave of absence without triggering taxation of the loan as long as the following requirements are met:


  1. The furlough cannot exceed 1 year,
  2. The loan must be repaid by the end of the original term of the loan. The missed payments that occurred during the furlough can be later repaid by continuing the original payment schedule, with a larger balloon payment of the missed installments at the end of the original loan term, or by increasing the payments upon reinstatement during the remainder of the loan repayment

Please note, special consideration should go into examining a participant case where the furlough begins in extreme proximity to the end of the original loan term.

Does the COVID-19 National Emergency qualify as a hardship?

The CARES Act passed by legislators on Friday, March 27th created a new form of Hardship Distribution from Qualified

Retirement Plans & IRA’s due to Coronavirus outbreak. The Coronavirus Related Distribution (“CRD”) became available to

participants in a qualified retirement plan that adopted these provisions effective immediately and provide the lesser of; up to 100% or $100,000 of a participant's vested account balance for COVID-19 Related Hardships.

A Qualified Individual is someone who:

  • is diagnosed with Coronavirus/COVID-19;
  • whose spouse or child/dependent is diagnosed with Coronavirus/COVID-19;
  • who has a financial hardship as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child-care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or other factors as determined by the U.S. Treasury Secretary.

As we’ve seen in the past for FEMA Disaster related hardship distribution, the 10% penalty is waived for qualified individuals and payment of income taxes owed can be made ratably on a 3-year schedule. Similarly, a participant may make tax free repayment contributions back to their qualified plan over this same 3-year period above the qualified plan limits for that given year. A Coronavirus related distribution must be taken by December 31st, 2020 and participants may retroactively treat any distribution taken from January 1st, 2020 as a CRD.

Please note, the above commentary are general guidelines, please consult your individual plan document or contact your recordkeeper for additional information.