March 27, 2020

President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 in response to the economic impact of the COVID-19 pandemic. This analysis is part of a series of articles on the stimulus package. View other articles in the series on our Coronavirus Resource Page.

It is expected that the administrative agency responsible for implementing each section of the CARES Act will adopt administrative rules providing clarity on the various provisions. We will continue to provide updates as details become available.


The CARES Act includes provisions that make it easier for participants to draw on their retirement savings in response to the financial pressure resulting from the COVID-19 pandemic through plan withdrawals or loans.

Eligible Individuals

The relief provided under the CARES Act is available to a plan participant if either:

  • The participant or the participant's spouse or dependent is diagnosed with COVID-19 using a test approved by the Centers for Disease Control.
  • The participant experiences adverse financial consequences as a result of:
    • being quarantined, furloughed or laid off,
    • having work hours reduced,
    • closing or reducing hours of the participant's business, or
    • being unable to work due to lack of child care related to the virus.

The CARES Act does not specify whether or how a participant will be required to substantiate that the above requirements have been met.

Coronavirus-Related Distributions

The following special rules apply to coronavirus-related distributions:

  • The participant may withdraw a total of $100,000 from all eligible retirement plans maintained by the participant's employer and members of the employer's controlled group.
  • The distribution will not be subject to the 10 percent excise tax penalty that would normally apply to an early retirement plan distribution.
  • The participant may elect to delay recognizing taxable income attributable to the distribution for up to three years.
  • The participant may repay all or a portion of the distribution within three years. The repayment may be made to any eligible retirement plan or IRA to which the participant would have otherwise been able to make a rollover contribution. Repayments of coronavirus-related distributions will not count toward annual contribution limits for the years in which they are made.

Plan Loans

Eligible individuals (defined above) can take advantage of new rules that expand the availability of loans and ease some of the repayment requirements for both new and existing loans:

  • The legal limit on new plan loans taken within 180 days following enactment of the CARES Act is the lesser of $100,000 or 100 percent of the participant's vested account balance (increased from $50,000 or 50 percent of the vested balance).
  • An eligible individual may elect to defer for up to one year any plan loan repayment that would otherwise be due on or before December 31, 2020, regardless of when the loan was originally taken.
    • Interest continues to accrue regardless of whether repayments are being made.
    • "General purpose" plan loans are normally required to be repaid over no more than five years. Under the CARES Act, the five-year term can be extended to account for any period during which the participant defers repayment.
    • If a participant elects to defer loan repayments, the outstanding balance of the loan should be re-amortized once payments resume.

Required Minimum Distribution (RMD) Relief

The CARES Act allows a plan sponsor to suspend making required minimum distributions during the 2020 calendar year.

Adopting CARES Act Provisions

Plan sponsors may allow participants to take advantage of the new distribution and loan rules immediately without amending their plans as long as the plans comply with the CARES Act in operation. Plan amendments must be adopted no later than the last day of the first plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year plans). The Act gives the Secretary of the Treasury discretion to extend this deadline.

Next Steps

Plan sponsors should consider the following when deciding whether to offer the coronavirus-related distributions and loans in the CARES Act:

  • Are there plan participants who would qualify for distributions and loans?
  • Will plan participants need expanded access to their retirement savings in order to weather the current economic conditions?
  • Do we need new election forms for the coronavirus-related distributions?
  • Do we need to revise the plan's written loan agreements?

Please contact Kathy Shaw or a member of Much's Labor & Employment team if you have any questions about the retirement plan provisions of the CARES Act.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.