CARES Act loan provisions- Optional

[Ian]

I have read several commentaries saying that the increased loan maximum for "qualified individuals" is an optional change, but that the loan repayment provision is mandatory. Any thoughts? Thanks.

[duckthing]

The CARES Act increases the maximum loan amount permitted by adding language to 72(p). Plans by and large specify the loan limit directly in the AA or loan procedures document -- i.e. they specify $50,000 or 50% of vested benefit. The CARES Act does not override this language and plans are not required to offer the maximum loan amount available under 72(p). So the higher limit is indeed optional, unless your plan's loan procedures incorporate the 72(p) limits by reference.

The "delay of repayment" section under the CARES Act provides that due dates for repayments during the period from 3/27/2020 through 12/31/2020 "shall be delayed for 1 year". No discretion there.

[DMcGovern]

Is the delay of repayment applicable only to "qualified individuals", or any participant with a loan payment due during that time frame?

I'm getting conflicting information on this

[Ian]

To me, the law is pretty clear that it's only "qualified individuals." 

[EBECatty]

I'm finding conflicting information here as well. The statute says "shall" but follows, to the letter, section 103 of the Katrina Emergency Tax Relief Act of 2005:

https://www.congress.gov/bill/109th-congress/house-bill/3768/text

(FWIW, the coronavirus-related distribution provisions of the CARES Act track section 101 of KETRA very closely.)

Notice 2005-92 gave guidance on implementing both sections, which I imagine is similar to what we will get under the CARES Act.

The notice doesn't outright say "under KETRA, the loan extension is optional," but section 5(b) of the notice very strongly implies that it is optional (e.g., "Thus, an employer is permitted to choose to allow this delay in loan repayments under its plan with respect to a qualified individual, and, as a result, there will not be a deemed distribution to the individual under § 72(p)" and "If a qualified employer plan suspends loan repayments during the suspension period, the suspension will not cause the loan to be deemed distributed even if, due solely to the suspension, the term of the loan is extended beyond five years" and "If an employer, under its plan, chooses to permit a suspension period that is less than the suspension period described above, the employer is permitted to extend subsequently the suspension period, but not beyond December 31, 2006." See also the example in section 5(b).

[Ian]

Thanks for pointing out the Katrina analogy.  It certainly muddies the waters on whether the loan suspension is optional or mandatory.

[RatherBeGolfing]

19 hours ago, Ian said:

To me, the law is pretty clear that it's only "qualified individuals." 

Agreed.

2202(b)(2) 

(2) DELAY OF REPAYMENT.—In the case of a qualified individual with an outstanding loan (on or after the date of the enactment of this Act) from a qualified employer plan (as defined in section 72(p)(4) of the Internal Revenue Code of 1986)—

[Bill Presson]

Additional question on "qualified individuals" - i was a little surprised to see that an economic hardship because of a loss of job by a spouse isn't also included. Am I missing something?

WCP

[duckthing]

I don't think you're missing anything. I would not be surprised if this a case where the "or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate)" language comes into play and we get additional guidance covering that scenario.

[Ian]

Not missing anything at all.  I've seen this described as "an unconscionable oversight" on the part of Congress.

[RatherBeGolfing]

16 minutes ago, Bill Presson said:

Additional question on "qualified individuals" - i was a little surprised to see that an economic hardship because of a loss of job by a spouse isn't also included. Am I missing something?

WCP

Yep same here.  However, there is also the "or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate)", so we may be able to get regulatory expansion..

[Ian]

RatherBeGolfing,

Do you have an opinion on whether the loan repayment suspension is optional or mandatory?

[RatherBeGolfing]

The use of "shall" seems clear, but the KETRA comparison is very compelling.  

[MoJo]

Write up from the offices of Bob Toth:

https://www.businessofbenefits.com/2020/04/articles/uncategorized/care-act-suspension-of-loan-repayments-is-it-the-employers-or-theparticpants-choice/