Archived Insight | July 10, 2020
In response to requests for guidance on retirement plan loans and distributions for individuals affected by COVID-19, the IRS issued three new Notices and also new guidance for safe-harbor 401(k) plans that wish to reduce contributions:
Plan sponsors that have already adopted CARES Act amendments or implemented administrative procedures may wish to revisit them in light of this latest IRS guidance.
Notice 2020-50 broadens the definition of who is a “qualified individual” for coronavirus-related distributions and loans by:
Additionally, Notice 2020-50 clarifies that:
Notice 2020-50 also provides CARES Act distribution tax-reporting information for both plans and participants.
Notice 2020-51 addresses most of the questions that have arisen with respect to 2020 RMDs and provides additional relief related to DC plan distributions. The highlights include:
Notice 2020-51 also includes a question and answer section that answers 12 specific questions how the 2020 RMD waiver affects related rules such as those dealing with election timing and spousal consents.
Notice 2020-52 eases the rules that sponsors must follow to make mid-year changes that reduce or suspend employer contributions to safe-harbor 401(k) plans. Safe-harbor plans satisfy the 401(k) nondiscrimination test and 401(m) matching contribution nondiscrimination test by making specified minimum nonelective or matching contributions.
Under this guidance, between March 13, 2020 and August 31, 2020, sponsors of safe-harbor 401(k) plans may adopt an amendment:
The Notice also clarifies that a plan may adopt a mid-year amendment that suspends or reduces contributions for only highly compensated employees. However, the plan must still provide those employees with an updated safe harbor notice and an election opportunity.
The relief in Notice 2020-52 also applies to 403(b) plans that use the matching-contribution safe harbor.
This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.
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