How Does the CARES Act Affect Retirement Plan Sponsors?

The recently enacted CARES Act (signed into law March 27, 2020) is the largest stimulus package to date in US history. As you might expect, there is impact on retirement plans - this post is to provide you a summary of its key provisions.

For most plans it really comes down to two critical points: 1) enhanced distributions and 2) increased loan limits. Let’s take a look in a bit more detail…

CARES Act Summary Provisions Plan Sponsors Need to Know

Penalty Free Distributions 

The Act allows for up to $100,000 to be withdrawn from an IRA, a qualified plan, a 403(b) plan or a 457(b) governmental plan through December 31, 2020. This is a new distribution, i.e., it is not considered a hardship distribution and is not subject to the 10% penalty for those under 59 ½ years old who invoke this type of distribution. To qualify, the participant must suffer from one of the following:

  • A positive virus diagnoses
  • A spouse or dependent positive virus diagnoses, or
  • An adverse financial consequence as a result of quarantine, furlough, layoff, hours reduced, inability to work due to lack of childcare, closing of business, or other factors as determined by the Secretary of the Treasury – this is the one that most will likely fall into

Additionally, you as a plan sponsor are not required to verify the status of a participant, they will self-certify!

There are a couple of other interesting nuances that are worthy to note:

  • The distribution is not subject to the mandatory 20% withholding tax and
  • The taxable portion of the distribution may be spread over or repaid within a three-year period beginning the date after the distribution was received

Increased Participant Loans

Plan sponsors now have the ability to increase loan limits to the lesser of $100,000 or 100% of the vested account balance for 180 days after the CARES Act enactment (March 27, 2020). Loan repayments that are due between the date of enactment through Dec. 31, 2020, may be delayed for one year. This includes outstanding loans that were already in place as of the date the CARES Act became law.

Waiver of Required Minimum Distributions (RMD)

RMDs for the 2020 distribution year have been waived. This provision is not optional; however, if an individual would like to withdraw funds from their account, they certainly may do so. There are several nuances to this waiver as well as provisions for first time 2019 RMD’ers required to take a distribution by April 1, 2020. Seek advice from your advisor or recordkeeper if your plan has participants that fall into such a situation. As you might expect, this provision does not apply to defined benefit plans.

Expansion of Department of Labor (DOL) Authority

The Act grants the DOL authority to waive ERISA imposed deadlines for up to one year. Examples of this could include employee deferral contribution deadlines, participant notices, form 5500 deadline, and more. As of this post, the DOL has not taken any such action.


It is important to note that most of the CARES Act provisions are voluntary. In other words, plan sponsors will need to decide which provisions, if any, they would like to implement. Any plan changes to accommodate the CARES Act will require a plan amendment. Two pieces of good news on this front:

  • For calendar year end plans, the amendment deadline is December 31, 2022 (the last day of the first plan year beginning on or after January 1, 2022 – governmental plans have even longer!)
  • You do not need the amendment in place before you start offering the above to your participants. If you do decide to adopt any of the provisions noted herein, we strongly recommend documenting your decisions (as always) and in many cases passing a board resolution

In sitting through several recordkeeper webinars over the past several days, recordkeepers are no doubt tooling up their standard operating procedures very quickly to be able to successfully administer the Act. We’ve heard that as soon as early April, some will be able to process such transactions. Some recordkeepers are using an opt out approach where they are automatically amending their client's plan and a plan sponsor will need to opt out if they desire no change. Our recommendation is to speak with your recordkeeper ASAP to understand when they will be ready as well as what guidance they can provide in terms of day to day management you'll need to be aware of for the plan changes you’d like to make.

As much as we generally don’t like to see more ways to take retirement dollars out before it’s time, these are certainly extraordinary times and it’s great to see that plan sponsors have more tools in their arsenal to help participants through such trying times.

How We Can Help

Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan. At Stonebridge Financial Group, this is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:

  • Ensuring participant retirement readiness
  • Plan ERISA readiness
  • 1:1 and group participant education and retirement readiness meetings
  • Financial wellness
  • Committee fiduciary training
  • Process creation and documentation
  • Plan design
  • Contribution match modeling
  • Annual plan compliance review
  • And so much more

We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!

Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email