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CARES ACT Loans Delay of Payments


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I am sure we have all read the bill and many articles.  I wanted outline three scenarios to make sure I am reading the Act correctly in regards to COVID Loans and the delay of payments.

1) We have a new COVID Loan and the participant delays the payments for 1 year.  The max loan period is still 5 years and payments that were supposed to start on 1/1/2021 will start on that date.  Payments that were supposed to start on 4/1/2020  - 12/31/2020 will start on 04/01/2021.  The loan will need to be re-amortized since interest has been accruing and even if payments were doubled the loan would not be paid off within the 5 year period.

2) There is an existing loan in effect.  Participant chooses to delay current payments for 1 year.  Let's say it is a 5 year loan and he is in year 2 of the loan.  Payments from now until the end of the year are delayed for 1 year.  The original loan payments go back into effect on 01/01/2021 and the delayed payments start back up on 04/01/2021.  We are now in year three of the loan and that loan needs to be re-amortized to make sure it does not exceed 5 years.

3) Loan is in 5th year and participant wants to delay payments for 1 year.  This is allowed and the 5 year rule is disregarded. Payment continue in next year and need the loans needs to be paid off within 6 years.

 

Do I have this correct???

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I understood that the 5 year period was extended.  Since interest accrues, you are right about reamortizing otherwise it won't be paid off at the end of the extended period.

I don't know about the "even if payments were doubled" part.

Ed Snyder

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1 hour ago, sdix401k said:

I am sure we have all read the bill and many articles.  I wanted outline three scenarios to make sure I am reading the Act correctly in regards to COVID Loans and the delay of payments.

1) We have a new COVID Loan and the participant delays the payments for 1 year.  The max loan period is still 5 years and payments that were supposed to start on 1/1/2021 will start on that date.  Payments that were supposed to start on 4/1/2020  - 12/31/2020 will start on 04/01/2021.  The loan will need to be re-amortized since interest has been accruing and even if payments were doubled the loan would not be paid off within the 5 year period.

2) There is an existing loan in effect.  Participant chooses to delay current payments for 1 year.  Let's say it is a 5 year loan and he is in year 2 of the loan.  Payments from now until the end of the year are delayed for 1 year.  The original loan payments go back into effect on 01/01/2021 and the delayed payments start back up on 04/01/2021.  We are now in year three of the loan and that loan needs to be re-amortized to make sure it does not exceed 5 years.

3) Loan is in 5th year and participant wants to delay payments for 1 year.  This is allowed and the 5 year rule is disregarded. Payment continue in next year and need the loans needs to be paid off within 6 years.

 

Do I have this correct???

Bird is correct;  the plan can extend the term of the loan for up to one year.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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