When the CARES Act was passed and signed into law on March 27th of this year, it provided employers the opportunity to extend their employees a potential lifeline to navigate the COVID-19 pandemic, and more notably the economic challenges that it presented. Specifically, these tools included:
- Increasing the amount that an employee can borrow from their 401(k) plan from 50% of the vested balance, with a $50,000 maximum, to 100% of the vested balance with a $100,000 limit.
- Making any 401(k) loan tied to COVID-19 interest free if paid back within five years.
- Allowing hardship withdrawals to COVID-19 affected employees younger than age 59 ½ without the standard 10% federal premature withdrawal penalties (state tax codes should be reviewed).
- Allowing employees to repay any hardship withdrawal distribution within a three-year period to avoid creating a taxable event.
These are unprecedented opportunities for employees that have been hit by COVID-19 circumstances, but there is one key stipulation.
In order for an employee to benefit from these provisions, their employer’s ERISA qualified plan must have a plan document that allows these benefits. Until March 27th there would have been no reason for them to be listed in a plan, and as such they were not. At this point, every retirement plan provider should have proactively reached out to every company with an employer-sponsored plan and recommended, or at very least initiated, an amendment to the plan to help their employees.
Has your retirement plan provider contacted you and taken the steps necessary to make your plan CARES Act ready? If they haven’t, why? While the deadline for employers to make amendments is generous, your employees only have until September 23, 2020 to take advantage of the loan provisions of the CARES Act, so every day counts.
If your plan provider is NOT helping you to make your 401(k) plan the most effective plan for your employees that it can be, contact your R&R Insurance Agent, and let them put you in contact with the in-house Wealth Management team that can make you a hero to your employees. We are prepared to make a difference for your employees, and to make sure that they know that you are always watching out for their best interests.