COVID loans

[thepensionmaven]

Plan allows for two loans at a time.  Participant has one loan outstanding and qualifies under COVID to both suspend on the existing as well as take out a new loan, the total of the two not to exceed $100K.

Is the $100K offset by the outstanding balance of the existing loan?

[Larry Starr]

2 hours ago, thepensionmaven said:

Plan allows for two loans at a time.  Participant has one loan outstanding and qualifies under COVID to both suspend on the existing as well as take out a new loan, the total of the two not to exceed $100K.

Is the $100K offset by the outstanding balance of the existing loan?

I wouldn't use the word offset; it is part of the maximum allowable loan calculation.  Read this (from IRS) at https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=A coronavirus-related distribution is,from all plans and IRAs.:

Loan limit may be increased: The CARES Act also permits employers to increase the maximum loan amount available to qualified individuals. For plan loans made to a qualified individual from March 27, 2020, to September 22, 2020, the limit may be increased up to the lesser of: (1) $100,000 (minus outstanding plan loans of the individual), or (2) the individual's vested benefit under the plan. See section 5.A of Notice 2005-92.

[thepensionmaven]

Are the COVID loan and distribution provisions total for the individual, or per plan?

Client has a defined benefit plan and a SEP.

Accountant wants him to take $100,000 from each.

I believe there is only one $100K allowed?

[Bill Presson]

19 minutes ago, thepensionmaven said:

Are the COVID loan and distribution provisions total for the individual, or per plan?

Client has a defined benefit plan and a SEP.

Accountant wants him to take $100,000 from each.

I believe there is only one $100K allowed?

Loan limits are separate from distribution limits. Since a loan can't be made from a SEP, take the distribution from there and the loan from the DB.

[Lou S.]

38 minutes ago, thepensionmaven said:

Are the COVID loan and distribution provisions total for the individual, or per plan?

Client has a defined benefit plan and a SEP.

Accountant wants him to take $100,000 from each.

I believe there is only one $100K allowed?

The distribution limits are individual and plan. That is an individual is limited to one $100,000 limit for COVID-19 related distributions in 2020 for all eligible plans or IRA that they are covered under.

If an employer has multiple plans, it should take steps to not exceed the $100,000 limit per participant across all it's related plans.

If an individual is a participant in multiple unrelated Plan's and IRAs it it possible that they could take multiple distributions from plans exceeding the $100,000 limit that the Plans may process as COVID-19 related based on the participant's self certification and be fine from the plan stand point, but when the tax payer files their taxes for 2020, they are limited to treating up to $100,000 in aggregate withdrawals as COVID-19 related subject to the special tax treatment.

As for loans -

The increased $100,000 limit is separate from the distribution limit and the affected employee can do both, but the $100,000 increased limit, like the current $50,000 non-COVID-19 limit is across all related Plans of the employer.

So if the intention in to take $200K ($100K loan and $100K distribution) I agree with Bill Preston above on what is probably the most efficient way to do it.

If the intention is to $200K covid distribution between DB/SEP, the participant is out of luck.