As the COVID-19 crisis deepens, many hardworking Americans are looking for answers from the government and their employers about the impact on their 401(k) and employee health plans. Julie Selesnick, of counsel at Cohen Milstein Sellers & Toll PLLC in Washington, D.C., and a member of the firm’s employee benefits/ERISA practice group, has studied the recent Coronavirus Aid, Relief and Economic Security (“CARES”) Act and created the frequently asked questions below to help workers understand the changes to the rules governing their 401(k) and health plans.
Q: Has the CARES Act changed the rules governing a participant’s access to funds in their 401(k)?
A: Yes, Section 2202 of the CARES Act temporarily eases the limitations on loans and distributions from 401(k) retirement funds and temporarily relaxes the rules regarding repayment of existing loans. Not every participant is eligible for this relief, however. There must be a coronavirus-related reason for seeking the loan, distribution, or deferred repaying of existing loans.
Q: Are participants who are impacted by coronavirus able to obtain distributions from their retirement funds?
A: Yes, if the plan allows it, participants may withdraw, penalty free, up to $100,000 between the date the CARES Act became effective (March 27, 2020) through Dec. 31, 2020, in “coronavirus-related distributions” (CRDs). This is double the usual limit allowed in any calendar year and can be taken as a loan or as a hardship distribution.
Q: What are the eligibility requirements to access this increased benefit?
A: Eligibility requirements are very broad so that as many people as possible qualify without needing to engage in a lot of administrative red tape. If you are a plan participant that meets any of these requirements, you are eligible to benefit under Section 2202 of the CARES Act:
- You, the participant, have been diagnosed with COVID-19.
- You, the participant, have a spouse or a dependent who has been diagnosed with COVID-19.
- You are experiencing financial hardship as a result of being laid off, furloughed, having your work hours reduced, or because of quarantine.
- You are unable to work because you have no available childcare due to coronavirus-related closures.
The CARES Act allows retirement plan administrators to rely on the word of the plan participant that they meet at least one of the above requirements. There is no need to request a doctor’s note or any additional documentation if a participant seeks a CRD, but it never hurts to request the participant certify in writing, even by email, that the CRD results from one of the above four areas, just in case anything is questioned in the future.
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