Three significant retirement plan changes in the CARES Act

The CARES Act was signed into law on March 27, 2020. With this act, the government is providing relief to those affected by the COVID-19 public health crisis and associated economic turmoil. In addition to the financial stimulus that’s been in the headlines, the CARES Act contains some significant retirement plan provisions you should be aware of, as they may apply to your plan.

If you’ve been financially or physically affected by the coronavirus known as COVID-19, you may be able to look to your 401(k) or other qualified retirement plan for some help. The Coronavirus Aid, Relief, and Economic Security (CARES) Act has made temporary changes to the rules for retirement plan distributions, loans, and required minimum distributions (RMDs). 

Retirement plans may allow a new distribution option

Generally, employees aren't eligible for a distribution from their employer’s retirement plan. The CARES Act allows employers to offer a new coronavirus-related distribution (CRD) option, under which: 

  • Participants in eligible retirement plans, including those still employed, may take distributions totaling up to $100,000 from their plan account. The 10% early withdrawal penalty that would generally apply to plan distributions made prior to age 59½ won't apply to such distributions.
  • The distribution can only be made to a qualified individual, defined to include:
    • a retirement plan participant who has experienced adverse financial consequences resulting from being quarantined, furloughed, laid off, or had a reduction in hours due to COVID-19; or being unable to work due to lack of childcare because of COVID-19, or
    • a retirement plan participant (or spouse or dependent) who has been diagnosed with the virus.
  • The distribution would need to be made on or after January 1, 2020, and before December 31, 2020.
  • The recipient can repay (but isn't required to repay) the distribution to an eligible retirement plan within three years of taking the distribution. This repayment would be treated as a rollover contribution to the retirement plan.

If you take a CRD under the act, it would be included in your taxable income proportionally over a three-year period, unless you elect to have it taxed in the year of distribution. The distribution would not be treated as an eligible rollover distribution, so the otherwise mandatory 20% federal withholding wouldn't be withheld. 

The retirement plan loan rules are relaxed

If your retirement plan allows participant loans, the maximum loan amount allowed is $50,000 or 50% of the account balance, whichever is lower. The CARES Act allows employers to temporarily increase the limit to the lower of $100,000 or 100% of the account balance. If you're a qualified individual under the CARES Act, you can determine your maximum dollar loan limit by subtracting any other loans you’ve taken in the last 12 months.

These increased limits apply to loans taken on or after March 27, 2020, and no later than September 22, 2020. Some recordkeepers may require that loan requests with the increased limits be submitted slightly earlier than the deadline in order to ensure that all loan requests are processed before the deadline.

For retirement plan loans that have loan repayments with a due date between March 27, 2020, and December 31, 2020, qualifying participants may request a one-year extension to repay the loan. 

RMDs for 2020 may be waived

If you would normally be required to take an RMD in 2020, you may wish to contact your retirement plan administrator to determine if your RMD can be waived for 2020, as permitted by the CARES Act. Also, if you've already received an RMD in 2020 and would like to redeposit it in your plan account, you should also contact your retirement plan administrator to discuss rollover options. 

See if you can get relief through your retirement plan from the CARES Act

The CARES Act provides a few ways that you might use your retirement savings to lessen the impact of the coronavirus. To be sure you're making the best decision for your circumstance, please talk to your retirement plan administrator or financial professional. 


Chris Frank

Chris Frank, 

Head of Defined Contribution Consulting

John Hancock Retirement

Read bio