The American Retirement Association, along with two dozen other trade organizations, are urging Congress to provide immediate relief to retirement plan sponsors, participants and retirees in the wake of the Coronavirus.
“The undersigned organizations, which represent plan sponsors and service providers to retirement plans covering millions of workers and retirees, urge immediate Congressional action to provide relief to employers that offer retirement plans, plan participants, and retirees in response to the current crisis created by the outbreak of COVID-19,” states the March 20 letter to all members of Congress.
In general, the proposed recommendations address both defined contribution (DC) and defined benefit (DB) plans, as well as IRAs, as a way to provide financial assistance to workers who may be unable to work and to preserve current cash flow to employers to ensure that they can pay workers and continue their businesses.
“This is a challenging time. Any action taken by Congress to allow pre-retirement account access must be balanced with America’s current retirement savings challenges and the impact of current market conditions on retirement plan balances,” the letter emphasizes.
Echoing earlier calls from the American Retirement Association, the letter calls for:
Temporary waiver of Required Minimum Distribution rules. Congress should provide a temporary waiver for calendar year 2020 of the RMD rules from DC plans and IRAs. A similar waiver was included in the Worker, Retiree, and Employer Recovery Act of 2008.
Streamline loan procedures and liberalize hardship distribution rules. Congress should allow penalty-free qualified distributions and loan modifications for individuals impacted by COVID-19 such as:
- waiving the 10% penalty on early withdrawals;
- permitting individuals three years to repay the distribution; and
- permitting individuals to include the distribution in income ratably over three years.
The recommendations also call for:
- doubling the current plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan;
- allowing three years to repay income tax associated with a loan default; and
- allowing individuals who borrow from their plan and have a repayment due during the months following the outbreak to delay their loan repayment for up to one year.
These changes would be similar to the disaster relief provided in Section 202 of the Further Consolidated Appropriations Act, 2020 (which also contained the SECURE Act).
Extend filing, notification, and payment deadlines. The organizations further urge Congress to extend federal tax filings due to COVID-19 the same as allowed for by reason of a federally declared disaster, which would also provide relief for employee benefit filings with the IRS, DOL and PBGC.
Relief for defined benefit plans. To assist DB plans with this situation, the organizations call for:
- freezing the interest rate at pre-COVID-19 pandemic levels;
- stabilizing contribution rates by extending and narrowing the interest rate collar;
- extending quarterly and final contribution due dates; and
- extending dates for making all funding balance elections.
Also recommended is a temporary pause in single-employer PBGC premiums to allow businesses to use their capital to weather the COVID-19 crisis. “Congress should remove PBGC premium obligations for plan sponsors for 2020 and consider reducing premiums for subsequent years,” the letter states.
ARA in Action
This letter comes as the ARA has been actively working with key lawmakers urging them to enact legislation that would provide similar tax relief to individuals and employers that suffer a sustained economic loss from the COVID-19 outbreak. https://www.napa-net.org/news-info/daily-news/ara-presses-retirement-pla...
The ARA has also pressed Congress to allow plan sponsors to temporarily cease safe harbor contributions to their plan for 2020, as well as allow plan sponsors with less than 500 participants be allowed to waive any employer contributions that have not yet been made to satisfy their 2019 obligations. https://www.napa-net.org/news-info/daily-news/ara-crafts-proposal-provid...
Additionally, the ARA has urged the Treasury and Labor departments to provide relief from certain retirement plan filing deadlines to alleviate ongoing and future business impacts of COVID-19.
What’s Next?
Senate Majority Leader Mitch McConnell (R-KY) on March 19 offered legislation—the Coronavirus, Aid, Relief, and Economic Security (CARES) Act—that includes some of the key provides advocated by the ARA affecting hardship distributions and plan loans. That bill served as the opening salvo in negotiations that started on March 20 for a third stimulus bill to address the Coronavirus.
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