CARES Act – Retirement and Other Employee Benefit Plans Relief

The CARES Act provides additional relief with respect to distributions and participant loans under defined contribution plans, funding relief for defined benefit plans and enhanced flexibility for health care options and tuition assistance. The deadline for amending retirement plans for these changes is the last day of the first plan year beginning on or after January 1, 2022. These provisions can be implemented immediately. What this means to you is that these provisions offer employees and employers additional options to address the potential financial hardships that arise as a result of the effects of COVID-19 and offer additional ways to access health care and prescriptions.

Minimum Required Distributions

The CARES Act temporarily waives the required minimum distribution rules for 2020 with respect to certain defined contribution plans and IRAs.

Coronavirus-Related Distributions

Individuals may take coronavirus-related distributions from qualified retirement plans of up to $100,000 without such distributions being subject to the 10% early distribution tax. Such distributions are subject to federal income taxation, which may be ratably spread over the three taxable year period beginning with 2020. An individual who takes a coronavirus-related distribution may repay the distribution to an eligible retirement plan during the three-year period beginning on the day after the date of the distribution. Repayments within the three-year period will result in the distribution not being subject to federal income taxation, or in the case that the income tax has already been paid, permit the individual to receive a refund of the previously paid federal income tax. An individual must satisfy certain requirements in order to qualify for coronavirus-related distributions.

Enhanced Participant Loans

A participant who qualifies for coronavirus-related distributions is permitted to take loans of up to the lesser of (1) $100,000 (increased from $50,000) or (2) 100% (increased from 50%) of the participant’s vested account balance. In addition, loans from qualified retirement plans with respect to participants who qualify for coronavirus-related distributions are subject to participant loan delayed repayment relief. This relief provides that any due date for a participant loan repayment that occurs during the period beginning March 27, 2020, and ending December 31, 2020, shall be delayed for one year.

Funding Relief for Defined Benefit Plans

Any required minimum contributions for a single employer defined benefit that are due during the 2020 calendar year are not required to be made until January 1, 2021, with accrued interest from the original payment due date to the actual payment date. Additionally, plan sponsors of defined benefit plans may treat the last plan year’s adjusted funded target attainment percentage as the percentage applicable to plan years which include the 2020 calendar year for purposes of applying the funding-based limitation on shutdown benefits and other unpredictable contingent event benefits.

Access to Health Care

For plan years beginning on or before December 31, 2021, a high-deductible health plan may cover all telehealth services prior to a covered individual reaching the applicable deductible without risking the plan’s status as a high deductible health plan. Employees covered under a high deductible health plan providing these services prior to reaching the deductible will continue to be eligible to make contributions to a health savings account. The purpose of this change is to increase access for patients who may have the coronavirus and to protect other patients from potential exposure. Individuals may also use funds in health savings accounts and health flexible spending accounts for the purchase of over-the-counter medical products, without a prescription from a physician.

Student Loan Repayment-Employee Education Assistance Program

Employers may provide a student loan repayment benefit to employees on a tax-free basis of up to $5,250 annually towards an employee’s student loans. The cap takes into account both any new student loan repayment benefit as well as other educational assistance currently provided by the employer. The provision applies to any student loan payments made by an employer on behalf of an employee after March 27, 2020, and before January 1, 2021.

Exchange Stabilization Fund

The CARES Act provides funding to the Treasury Department’s Exchange Stabilization Fund (“ESF”), that will be a source of loans, loan guarantees or other support for certain businesses, states and municipalities. What this means to you is that there are other sources of funds available to you, but they come with strings and conditions that you should carefully evaluate.


Loans under the ESF are limited to 5 years in duration, and the interest rate will not be less than the prevailing rates prior to the COVID-19 outbreak. Credit must not be otherwise available to the applicant, and the loan or loan guarantee must be sufficiently secure or made at rates that reflect the risk of the same.


Borrowers must agree that until one year after the loan is no longer outstanding such borrower will not: (i) engage in stock buybacks (unless contractually obligated), or pay dividends; or (ii) increase compensation of any employee whose compensation exceeds $425,000 or offer them significant severance/termination benefits. Further, during such period the officers and employees of the borrower whose compensation exceeded $3 million in 2019 cannot receive compensation greater than $3 million, plus 50% of the amount over $3 million that the individual received in 2019. Borrowers must also agree to maintain employment levels as of March 24, 2020, and retain no less than 90 percent of employees as of that date until September 30, 2020.

Other Aid

There are hosts of other provisions in the CARES Act not highlighted above, and outside the scope of this publication. Those provisions include, among others, enhancements to the nation’s programs to support the health care system, provisions and investments to improve the nation’s preparation for future outbreaks, and the providing of relief for educational institutions and other designated industries.


OUR BOTTOM LINE: If you rely on us for your financial advisory needs, we’ve got you covered in providing you with actionable advice on these matters. If you don’t, we encourage you to reach out to us to guide you in navigating these uncharted paths.