How Does the CARES Act Enhances My Benefits?
Last Updated on July 24, 2020 by VantagePoint
Benefit Enhancements
OTC Pre-Tax Reimbursement
Over-the-Counter Prescriptions (OTC) no longer need a physician’s prescription.
- This applies to Flexible Spending plans (FSA) or Health Saving Accounts (HSA).
- It can be retroactively applied on 1/1/2020.
- Adopting this will require adjustments to your Section 125 plan documents.
If you are not familiar with a Section 125 document (they are required for all pre-tax programs) or you do not offer either of these programs, please call us for further details.
Retirement Plan Loans and Distributions
The CARES Act allows distributions or loans from Qualified Retirement Plans for qualified individuals who satisfy the following:
- The participant has been diagnosed with the virus (confirmed by a CDC- approved test).
- The participant’s spouse or dependent has been diagnosed with the virus; OR
- The participant has suffered financially from the pandemic because (any or all reasons):
– The participant was laid off, furloughed, quarantined, or had hours reduced.
– The participant can’t work due to the unavailability of childcare due to the virus.
– The participant’s own business has had to close or reduce hours.
The Plan Administrator can rely on a participant’s self-certification that they are a qualified individual. Distributions are also available for beneficiaries of deceased participants.
Distribution from Retirement Accounts
- May be taken from any eligible retirement plan including 401(k), IRA’s, 403(b) and 457 Plans.
- Distribution of up to $100,000 from a vested account balance. The distribution request must be made by 12/31/2020.
- The 10% early withdrawal penalty tax is waived. The 20% mandatory tax withholding is waived.
- Taxes will still be due by the participant but can be paid over a 3-year period.
- If a participant repays the withdrawn amount back into a qualified retirement account the amount will not be taxed as ordinary income.
- These repayments will not count as a contribution toward the IRS annual contribution limits.
- The CARES Act does not allow for this type of distribution from a Defined Benefit, Cash Balance or Money Purchase Plan.
Loans from Retirement Accounts
- If your retirement plan currently allows participant loans, a participant can take out a higher loan amount and/or delay repayment of new and existing loans.
For new participant loan requests:
- The loan must be requested no later than September 23, 2020.
- The maximum limit for a loan is increased to 100% of the vested account balance or a maximum of $100,000.
- Repayments may be delayed for up to 12 months.
For existing participant loans:
- Participants may increase their loan amount, and/or delay loan repayments for up to 12 months any loan repayment that is due between 3/27/2020 and 12/31/2020.
- If a participant delays payment, their total repayment period is extended by that same amount of time (giving participants longer than the traditional IRS rule of 5 years to repay).
You may call us or your provider to obtain these loan and/or distribution forms.
Required Minimum Distribution (RMD) Suspension
- No RMD’s are due for individuals who have been taking RMD’s in previous plan years.
- Any RMD’s due in 2020 not already distributed are waived.
Delayed Funding for Single-Employer Defined Benefit and Cash Balance Plans
- The due date for any defined benefit contribution during 2020, for 2019 Plans, is extended to January 1, 2021.
If you have any questions, please call us. We are here to help you figure this out.
If you have any questions regarding how COVID-19 will affect your business and the options you have as an employer, please give us a call.
Monday – Friday: 8:30 am – 5:30 pm. (516) 599-2120 or