The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, primarily focused on economic stimulus for businesses, families and individuals, also presents certain provisions related to retirement plans. Below is a breakdown of those provisions.
Q: Is my USOSM sponsored 401(k) plan with Fidelity eligible under the new provisions?
A: Yes, your Fidelity 401(k) plan sponsored by USOSM qualifies and is eligible for these provisions.
Q: Who is eligible?
A: According to the CARES Act, these provisions apply to “eligible employees” defined as those:
- Who are diagnosed (or whose spouse or dependent is diagnosed) with COVID-19 (by a test approved by the Centers for Disease Control and Prevention);
- Who experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced due to virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
Q: What are the 401(k) Provisions?
A: The new provisions provide you with a waiver of the 10% early distribution penalty for withdrawals of up to $100,000. Your distributions are capped at $100,000 (per eligible participant).
Q: What is changing regarding how I repay my distribution?
A: You can opt to have the distribution included as income over three tax years, beginning with the tax year in which the distribution was received. You also have the option to repay the distribution amount, in one or multiple payments, within three years from the date of the distribution to avoid paying the income taxes. This applies for distributions beginning January 1, 2020 through December 31, 2020.
Q: How does this impact loans I take from my retirement plan?
A: If you are eligible, the law includes loan relief for both new and outstanding loans. Under the new provisions, the loan limit has been doubled to allow for loans of up to $100,000 or 100% of your vested account balance. You can take advantage of this loan increase provision through September 23, 2020.
Q: What if I already have an outstanding loan?
A: If you are eligible and have an outstanding loan from your plan with repayment due between March 27, 2020, and December 31, 2020, you are now eligible to delay your loan repayments for up to one year.
Q: Where and how do I apply for a loan?
A: You will be able to apply for a loan by logging into your account and completing the online application. In most cases, loan applications can be completed entirely online, however, there may be some instances (for example, if your plan requires spousal approval for a loan) in which paper documents may be required.
Q: How long does it take to process a loan or withdrawal?
A: If a loan or withdrawal request is submitted before 4pm EST, and has been pre-approved, the transaction will be processed the next business day. Direct deposit plans have changed and if you input your bank account information, the funds will be deposited within three business days. If you submit your request via mail, you will receive the funds within seven business days and if you opt for express mail ($25 charge) you will receive the funds within two business days.
Q: How do I get information about the status of my loan or withdrawal?
A: You will receive email updates from Fidelity on the status of your loan or withdrawal, including when your money is on the way. For loans in process, you can view the pending loan transaction by visiting the Summary page on your account and selecting the Withdrawals/Loan tab.
Q: Is all of this set-in stone?
A: Generally speaking, yes. However, it’s important to know that more guidance and clarity regarding the CARES Act will become available in the coming days. It will be important to continue to check your account for more information, updates and alerts regarding the CARES Act and your retirement plan.
