Notice 2020-23: all loan repayments on hold?

[AlbanyConsultant]

Does this really give everyone a blanket suspension on loan repayments until July 15?  I didn't read it that way, but the latest ERISApedia webinar with Derrin Watson said that's what it meant (though the loan has to be caught up by 12/31/20).

So... since you don't have to be a "qualified individual" like for the coronavirus suspension, are all loan repayments for everyone suspended until then?  Or just if requested?  I assume this is mainly a mechanism to postpone defaults.  And of course the Notice doesn't say anything about accruing interest or reamortizing... I don't see the recordkeepers just giving everyone a few months off.

[RatherBeGolfing]

11 minutes ago, AlbanyConsultant said:

Does this really give everyone a blanket suspension on loan repayments until July 15?  I didn't read it that way, but the latest ERISApedia webinar with Derrin Watson said that's what it meant (though the loan has to be caught up by 12/31/20).

2020-23 postpones certain due dates, including loan payments, but my understanding is that it is up to the plan whether to extend it to the participants.

Loan payments otherwise due between April 1 and July 14 are now due July 15, all of them.  Interest accrues, no extension of amortization period, and no automatic reamortization. Assuming the plan uses the maximum cure period, 12/31/20 would be the date in order to avoid default.

 

[Belgarath]

From the IRS FAQ's issued May 4th - 

Q9. Is it optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act?

A9. It is optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act. An employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans that satisfy the provisions of section 2202 of the CARES Act. Thus, for example, an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules. Even if an employer does not treat a distribution as coronavirus-related, a qualified individual may treat a distribution that meets the requirements to be a coronavirus-related distribution as coronavirus-related on the individual's federal income tax return. See section 4.A of Notice 2005-92.

[AlbanyConsultant]

But @Belgarath, Notice 2020-23 isn't part of the CARES Act (it was issued about two weeks earlier... which is something else I just learned).  I see the FAQ is titled "Coronavirus-related relief for retirement plans and IRAs questions and answers", but it seems to specifically refer to the CARES Act provisions and not the prior Notice (except 2005-92 as referenced).

[Luke Bailey]

Can someone point out the language in Notice 2020-23 that affects participant loan due dates? I'm not seeing it.

[Belgarath]

Albany - I agree. For whatever reason, I was thinking about the 1-year extension. But yes, I agree, the extension to July 15th is automatic. 

[Bird]

13 hours ago, Luke Bailey said:

Can someone point out the language in Notice 2020-23 that affects participant loan due dates? I'm not seeing it.

(Apparently) it was the reference to Notice 2018-58.  (I'm not sayin' I knew it, but I found that explanation.)

[RatherBeGolfing]

41 minutes ago, Bird said:

(Apparently) it was the reference to Notice 2018-58.  (I'm not sayin' I knew it, but I found that explanation.)

Correct.  And the relevant language in Notice 2018-58 can be found in Section 8.1 (page 40)

Quote

 Act Postponed

Sec. 72(p)(2)(B) and (C), and Sec. 1.72(p)-1, Q&A10 A loan from a qualified employer plan to a participant in, or a beneficiary of, such plan must be repaid in accordance with the timing requirements of section 72(p)(2)(B) and the level amortization requirement of section 72(p)(2)(C) (taking into account, if applicable, any cure period granted pursuant to § 1.72(p)-1, Q&A-10(a)).

 

[AlbanyConsultant]

OK, so it exists.  But how to use it functionally?  Telling plan sponsors to automatically not deduct loan repayments until July 15 seems extreme.  #liberateloanrepayments LOL Do they have to ask each participant with a loan how they want to handle it (and for those with multiple loans... ugh)?  And then just double-up after 7/15 to get them caught up ASAP so they don't end up in default?

[Luke Bailey]

It seems to me that Notices 2020-23 and 2018-58 cannot be interpreted as a direction to plan sponsors to alter any facts (including an agreement to withhold from pay) about the loan. They just say that a participant's failure to make a loan payment during the April 1, 2020 through July 14, 2020 period that would otherwise (under 72(p) and its regulations, and under the plan's loan documents and procedures) cause a deemed or loan offset distribution (whichever would apply) on a date during that period will not result in a deemed or loan offset distribution until July 15, 2020. Although not clear from the text of the two notices, this probably, means that a cure period that would otherwise end on June 30, 2020 is extended to July 15, 2020. (I say probably because it seems to me that you could interpret 2020-23 and 2018-58 as saying that only the time when the loan must be deemed or offset is extended, not the end of the cure period for causing the loan not to be deemed or offset.) But yes, putting aside, for a moment, the CARES Act, under 2020-23 and 2018-58 a loan whose cure period would have ended on June 30 would be deemed or offset on July 15, 2020, unless (maybe) the individual brings it current on July 15 (14?), 2020.

But of course, for qualifying individuals the CARES Act date suspends loan repayment obligations for loans outstanding on March 27, 2020 until the beginning of 2021. If the CARES Act is treated as suspending not only scheduled loan repayments, but also delinquent payments, which I think is still an open question awaiting guidance from IRS, then for individuals qualifying for relief under the CARES Act that relief would include all cases of relief under 2020-23.

[Bird]

2 hours ago, AlbanyConsultant said:

Telling plan sponsors to automatically not deduct loan repayments until July 15 seems extreme.

I agree it's extreme and don't see any reason to consider that action.

 

2 hours ago, AlbanyConsultant said:

Do they have to ask each participant with a loan how they want to handle it (and for those with multiple loans... ugh)?

Absolutely not. 

I think it exists simply for those loans that aren't being paid.  It doesn't exist to encourage or offer payment suspensions 

[TPABob]

This is our understanding of it:

Because of the extensions provided by the IRS, the deadline to make loan repayments due on or after April 1 (without running afoul of the deemed distribution rules), is extended to July 15. This applies to all loans, not just loans to Qualified Individuals which can enjoy a longer suspension period under the CARES Act. With maximum use of regulatory cure period provisions, a participant can make up any missed payments by December 31. For example, if a “non-qualified individual” stops making payments any time during the period of 4/1/2020 through 7/15/2020, it’s treated as if the payments stopped during Q3 2020, thus making the end of the cure period 12/31/2020.

[Luke Bailey]

9 minutes ago, TPABob said:

This applies to all loans, not just loans to Qualified Individuals which can enjoy a longer suspension period under the CARES Act.

Good point. I have  clarified my post on that point. Thanks, TPABob.