CARES Act loan provisions- Optional REVISITED

[Ian]

After a week of parsing through the analyses and commentaries, it appears that a general consensus has emerged that all of the CARES Act benefit provisions (RMD waiver, coronavirus -related distributions, loan maximum and loan repayment suspension) will be treated as optional. 

With regard to the RMD waiver, in 2009 the IRS even allowed companies to have participants choose whether to take the RMD.

Is that the conclusion you guys have reached?

 

[Bill Presson]

Our interpretation is that all RMDs are waived for 2020 and it is not optional.

[Ian]

Bill,

Did you look at IRS Notice 2009-82:

"To address the concerns of plan sponsors, two alternative sample plan amendments are provided in the Appendix that individual plan sponsors and sponsors of pre-approved plans can adopt or use in drafting individualized plan amendments.  Both sample amendments provide participants and beneficiaries the choice between receiving and not receiving distributions related to 2009 RMDs."

Or this, from ERIC, the retirement industry lobbying organization:

"The CARES Act suspended the requirement to issue required minimum distributions (RMD) for 2020. The CARES Act makes this suspension optional with the plan sponsor."

Or, this from Robert Richter, Retirement Education Counsel for the American Retirement Association:

"A common question regarding the CARES Act distribution, loan and required minimum distribution (RMD) waiver provisions is whether these provisions are optional or mandatory. In most cases, they are optional—but in the retirement world there are very few questions where a short answer will suffice." 

 

[Bill Presson]

2009-82 isn't the CARES Act, so I'm not worried about that. And Robert is lumping it all together, so I'm not sure it's specific.

Haven't seen the ERIC info other than what you posted.

[Ian]

This is the ERIC letter. See A. 4.:

https://www.eric.org/wp-content/uploads/2020/04/ERIC-Tri-Agency-Request-for-Specific-Plan-Sponsor-COVID-19-Guidance-04-06-2020.pdf

 

[RatherBeGolfing]

@Ian what is it that you are trying to achieve / what is the reason for your question?  Are you in the retirement industry, or are you an affected party?  

The answer to your question is not going to be a simple yes or no, so it will help to know how the answer the question

[Ian]

I'm an attorney/consultant trying to advise clients. I'm fortunate not to be an affected person.

Just trying to see if a consensus has formed on the optional vs. mandatory question. Nothing more than that.

[Gilmore]

Is the ability to pay out RMDs a plan decision, but the taxation not?

For example, the plan sponsor decides that RMDs will be paid out as usual, but the distribution itself is not taxed in the same manner as an RMD (for example 20% withholding would apply, eligible for rollover, etc).

[EBECatty]

6 minutes ago, Gilmore said:

Is the ability to pay out RMDs a plan decision, but the taxation not?

For example, the plan sponsor decides that RMDs will be paid out as usual, but the distribution itself is not taxed in the same manner as an RMD (for example 20% withholding would apply, eligible for rollover, etc).

This is my understanding. I believe in 2009 plans could still choose to continue paying on the same schedule, but it wouldn't technically be an RMD. 

[Ian]

If you look at Notice 2009-82,the IRS gave employers the option of deciding whether to treat any RMDs paid as eligible for direct rollover. The IRS also said any RMDs paid would not be subject to 20% mandatory withholding.

[Bill Presson]

Here's Robert's response specifically to the RMD question.

https://www.asppa-net.org/news/cares-act—optional-or-required-part-3—rmd-waivers

For the record I'm not sure I completely agree with him on a blanket basis.

[Bob the Swimmer]

Warning, some large asset managers are already sending out letters on RMDs that reference the pre-CARES Act rules for 2020.

[Ilene Ferenczy]

Hi, all --

IMO (and that of my colleagues here at FBLC):

DC RMDs, as required by IRC 401(a)(9) are suspended for 2020.  That's mandatory.

The answer to your more specific question lies with what the plan document says.  Let's pretend the plan says: "No distributions unless specifically requested by the participant except RMDs under 401(a)(9)."  Under that provision, no distribution can be made to a participant without his/her request because there is no RMD.

Let's pretend the plan says, "In absence of an alternate election, participants over age 70-1/2 must receive an annual distribution, the amount of which is their account balance as of the last year end, divided by the rate in the 401(a)(9) regs."  In that case, distributions must continue, because the plan document so requires.  The distribution will be an eligible rollover distribution, as it is not an RMD.  If it is to a qualified individual, it will be a COVID-related distribution.

Let's pretend the plan says, "No distributions except lump sums, except for RMDs."  In that case, the participant can get a distribution if he/she requests, but it cannot just be the amount that would have been paid as an RMD; it must be a lump sum.

ALL of these plan provisions are subject to amendment, and most of the amendments can be done in 2022.

Hope this helps.

Ilene

[Bill Presson]

5 minutes ago, Ilene Ferenczy said:

Hi, all --

ALL of these plan provisions are subject to amendment, and most of the amendments can be done in 2022.

Hope this helps.

Ilene

Perfect. Thank you, ma'am.