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COVID-19 Retirement Plan Help

COVID-19 Retirement Plan Help and the CARES Act

Dear Friends,

We hope you are doing well despite the medical and economic challenges created by COVID-19. On Friday, March 27 the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act amends and introduces new retirement plan provisions to support employers and plan participants. Spectrum's Consultants have gone through the CARES Act and summarized the retirement plan changes for you. In times of economic uncertainty and turbulent financial markets, we know employers and individuals will have questions. Please know that we are here to help and we invite you contact us.


The CARES Act - Retirement Plan Relief

Qualified Individuals
The most significant retirement plan changes in the CARES Act are intended to help plan participants. The CARES Act introduces coronavirus-related distributions and expands participant loans for qualified individuals. A qualified individual...

  • has been diagnosed with COVID-19;
  • has a spouse or dependent(s) diagnosed with COVID-19; or
  • experiences adverse financial consequences due to the virus resulting from:
    • being quarantined, furloughed, or laid off;
    • having their work hours reduced;
    • being unable to work due to lack of child care; or
    • closing or reducing hours of a business the individual owns or operates.

Introduces Coronavirus-Related Distributions
The CARES Act permits distributions from January 1, 2020 to December 31, 2020 to qualified individuals (see above) of up to $100,000. In addition, the 10% early withdrawal penalty for such distributions is waived and the 20% federal income tax withholding can be ignored. The distribution can be repaid to the plan within 3 years to gain tax-free rollover treatment. Taxable amounts required to be included in gross income can be spread over a 3-year period.

  • Who wins: Qualified individuals (see above).
  • Who loses: The U.S. Treasury.
  • Our take Thumbs up. We recommend participants dip into retirement funds only as a last resort. However, the current economic environment will leave many plan participants without better alternatives. This provision was correctly drafted so participants can repay the distribution when their personal financial circumstances improves.

Expands Participant Loans
For 180 days starting from the CARES Act's enactment, participant loan limits to qualified individuals (see above) are increased to the lesser of: (a) 100% of a participant's vested account balance, or (b) $100,000. Also, for qualified individuals, participant loan repayments may be delayed for 1-year.

  • Who wins: Qualified individuals (see above).
  • Who loses: No One.
  • Our take: Thumbs up. We recommend participants dip into retirement funds only as a last resort. However, the current economic environment will leave many plan participants without better alternatives than taking a participant loan. Current limits for participant loans are the lesser of 50% of a participant's vested account balance or $50,000. This expansion effectively doubles the limit for qualified individuals.

Waives Required Minimum Distributions (RMDs)
The CARES Act waives all RMDs which would otherwise be due during the 2020 calendar year, including the 2019 initial RMDs which would otherwise have been due by April 1, 2020.

  • Who wins: Any individual required to take RMDs.
  • Who loses: The U.S. Treasury.
  • Our take: Thumbs up. The current economic environment has caused many participants to suffer financial losses in their retirement plan accounts. Participants should not be compelled to sell investments at considerable losses in tax-deferred plans. Waiving RMDs for a year will be welcomed by many older retirement plan participants.

Modifies Plan Amendments and Compliance Deadlines
Employers may start using CARES Act retirement plan provisions immediately. Plan amendments for adopting relief under the CARES Act would be due no later than the last day of the first plan year beginning on or after January 1, 2022. The CARES Act also gives the U.S. Department of Labor authority to postpone certain deadlines that apply to ERISA-covered plans. Any postponements must be due to a public emergency declared by the U.S. Department of Health and Human Services. This provision includes the current public emergency for COVID-19.

  • Who wins: Employers.
  • Who loses: No one.
  • Our take: Thumbs up. Employers and their employees have much more to deal with right now than ERISA compliance deadlines. If Spectrum administers your plan document, we will adopt the provisions on your behalf. Reasonable delays of deadlines will encourage employers to maintain workplace retirement plans. We believe the U.S. Department of Labor will likely delay the deadlines for Form 5500, participant benefit statements, and certain required notices.

How Spectrum Can Help You

COVID-19 has been disruptive to many organizations. As retirement plan experts, we design and administer workplace retirement plans to meet employer objectives. Our 100% transparent fee-for-service business model ensures that our advice is free from conflicts of interest. If you would like to amend or redesign your workplace retirement plan, please call or send an email to your Spectrum Account Manager. We will recommend solutions to help based on your unique circumstances. Prospective clients are invited to contact our Sales Consultants, who can perform a retirement plan review as a professional courtesy. We are all in this together, and we will help as we can.

COVID-19 has also disrupted financial markets. The Dow Jones Industrial Average fell 30% from its February 2020 high before recovering a bit last week. More than 90% of Spectrum’s workplace retirement plan clients engage a financial professional for their retirement plans. We encourage employers to contact their retirement plan investment advisors for market perspective and economic outlook during this period of increased volatility. Plan participants would be well-served to revisit their asset allocations and savings rates in combination with good investment advice. Our experience suggests professional advice can help employers and plan participants to improve outcomes. Please feel free to give us a call if you are not working with a financial professional and would like a referral to a retirement plan investment advisor.

As difficult as these circumstances are, we take some solace in knowing the medical and economic issues are event-driven rather than structural. We remain confident in our future, even though the next several weeks will be incredibly difficult for so many. Please feel free to get in touch with us to review the CARES Act further, ask plan design questions, request a retirement plan advisor referral, or discuss any other service matters. As always, it is our privilege to serve you today, tomorrow, and beyond.



Petros P. Koumantaros
Managing Director & CEO

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ERISA Workplace Retirement Plan Limits

The federal government annually publishes updated qualified retirement plan limits, which impact the contributions, benefit accruals, and compliance of ERISA covered qualified retirement plans. The below tables summarize the most significant changes in recent history.


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