An Employee Benefit Plan Update: Loan relief provisions due to COVID-19

Published May 21, 2020 – The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by the President of the United States on March 27, 2020. The CARES Act, among its many provisions, provides relief for both retirement plan participants and plan sponsors. A summary of the key provisions impacting retirement plans is provided below:

Loans to plan participants

Section 2202 of the CARES Act addresses loans made to participants. Eligible retirement plans may now issue loans to qualifying participants, as previously defined, in an amount equal to the lesser of (1) $100,000 or (2) the participant’s vested account balance. Previously, loan amounts were generally limited to the lesser of (1) $50,000 or (2) 50% of the participant’s vested account balance. The expansion of the loan limitation is effective for loans made to qualifying individuals during the period beginning March 27, 2020 through September 23, 2020.

Section 72(p) of the IRC generally states that a plan loan to a participant must be repaid within 5 years and the loan must require substantially level amortization over the term with payments no less frequently than quarterly. The CARES Act alters this guidance by delaying any loan repayment originally scheduled to occur during the period beginning March 27, 2020 through December 31, 2020 by 1 year. The 1-year period will be disregarded for purposes of determining whether the loan meets the maximum term and level amortization requirements set forth by Section 72(p).

Any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in due date and any interest accruing during such delay.

Note on plan amendments – While these provisions can be implemented immediately, plans must formally amend their plan documents to allow for these provisions by the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 in the case of a governmental plan). During calendar year 2020, as long as the plan operates as though an amendment were being made to the plan immediately, plans will not be treated as failing to operating in accordance with their terms if they amend by this deadline.

This article is an excerpt from Dopkins COVID-19 Employee Benefits Newsletter.  To read the complete content, please click here.

For more information, please contact Vincent Pasini at vpasini@dopkins.com or Justin Renaud at jrenaud@dopkins.com.

About the Author

Justin S. Renaud CPA

Justin is a member of Dopkins Assurance Services Group. He helps provide management with financial information by researching and analyzing accounts and preparing financial statements.

About the Author

Vincent Pasini CPA

Vincent Pasini holds extensive experience in contract design, management and review/audit of financial statements.

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