CARES Act Provides Economic Relief to Deferred Compensation Plan Participants
Learn More About New Provisions Regarding:
CARES Act Distributions
CARES Act Loans
Suspension of Required Minimum Distributions
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a response to the public health crisis and associated economic fallout in the wake of COVID-19. The CARES Act was signed into law on March 27, 2020.
The CARES Act includes new loan and distribution provisions that are optional for a plan sponsor to adopt. The City’s Board of Deferred Compensation Administration and Personnel Department moved quickly to adopt these provisions for the City’s participants. The CARES Act also automatically suspends Required Minimum Distribution (RMD) rules for 2020.
Overview of Key CARES Act Provisions Affecting the City’s Plan
CARES Act Coronavirus-Related Distributions (CRDs)
IMPORTANT:
In order to receive the coronavirus-related relief you will be required to certify that you satisfy one of the Eligibility Requirements listed at the time of the request. For more information or to elect one of these options, please call and speak to a Plan Service Center Associate at 844-523-2457 or visit LA457.com.
The CARES Act allows for, and the DCP has adopted, a new type of distribution called a “coronavirus-related distribution” for those individuals who meet certain eligibility requirements. If eligible, participants have until December 30, 2020, to take a CRD.
What are the eligibility requirements?
You, your spouse, or your dependent have been diagnosed with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
You, your spouse, or a member of your household (that is, someone who shares your principal residence) experience adverse financial consequences as a result of the following resulting specifically from COVID-19:
being furloughed or laid off, or having work hours reduced
being unable to work due to lack of childcare;
closing or reducing hours of a business that the individual owns or operates;
having pay or self-employment income reduced; or
having a job offer rescinded or a start date for a job delayed; and
You acknowledge when requesting a Coronavirus-Related Distribution that you meet at least one of the above qualifying criteria.
How much can I withdraw with a CRD?
The distribution is limited to a maximum aggregated amount of $100,000 from the DCP as well as all other plans - including 401(a), 401(k), 403(b), and governmental 457(b) plans - and a traditional IRA. If you take a CRD from another plan or IRA, you are responsible for tracking your limits to ensure you do not exceed the maximum.
When can I take a CRD?
Participants have until December 30, 2020, to take a CRD.
What tax rules apply to a CRD?
Any applicable IRS 10% early withdrawal penalty tax and the federal 20% mandatory withholding requirement that would otherwise apply to distributions will not apply to a CRD. The CRD will be reported as a distribution for tax year 2020, but recipients may choose to pay the taxes over three years.
Can I pay back a CRD?
Yes. A CRD can be repaid to the DCP, or to an IRA to which a rollover contribution can be made, within three years of the date of distribution. Repayments are treated as rollover contributions.
How do I apply?
To apply please call our toll-free line at 844-523-2457. Note that for security purposes, participants must authenticate with their PIN for distributions. If you’ve forgotten your PIN, a Service Associate can send a PIN reminder or a one-time password code to your registered mobile phone.
CARES Act Loan Provisions
The CARES Act allows for, and the DCP has adopted, expanded loan provisions for those individuals who meet certain eligibility requirements, including both a higher loan ceiling as well as a the ability to delay loan repayments for one year.
What are the eligibility requirements?
You, your spouse, or your dependent have been diagnosed with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
You, your spouse, or a member of your household (that is, someone who shares your principal residence) experience adverse financial consequences as a result of the following resulting specifically from COVID-19:
being furloughed or laid off, or having work hours reduced
being unable to work due to lack of childcare;
closing or reducing hours of a business that the individual owns or operates;
having pay or self-employment income reduced; or
having a job offer rescinded or a start date for a job delayed; and
You acknowledge when requesting a CARES Act loan that you meet at least one of the above qualifying criteria.
How much can someone borrow with a CARES Act loan?
A qualified individual may take out a loan in an amount not to exceed the lesser of $100,000 or 100% of the participant’s vested account balance. This amount includes the total of new and prior loans. Please note that the larger loan provisions do not change the maximum number of loans (two) that a participant may take from City’s Plan at any given time. Participants needing to borrow funds from their Self-Directed Brokerage Account (SDBA) will need to transfer those funds to the Core Account before applying for a loan.
How long can loan repayments be extended for qualified individuals?
Loan repayments may be delayed by one year for any qualified individual who (1) has an outstanding participant loan balance on or after March 27, 2020, and (2) has loan payments due from March 27, 2020 through September 22, 2020. Please note that all subsequent payments are adjusted to take into account the one-year delay and the interest accrued during the delay.
When can I take a CARES Act loan?
Participants have until September 22, 2020, to take a CARES Act loan.
What are the tax rules that apply to a CRD?
No tax consequences apply to CARES Act loans so long as the loan amount is repaid in full.
How do I apply?
To apply please call our toll-free line at 844-523-2457.
Required Minimum Distribution Suspension for 2020
The CARES Act provides for the suspension of Required Minimum Distributions (RMDs) in 2020. The Congressional intent in suspending RMDs is to allow participants to defer distributions when asset values have declined and provide time to recover market losses.
What are RMDs?
RMDs are mandatory distributions for those who have reached a certain age threshold and are thus required to withdraw their funds in minimum amounts in accordance with their life expectancy.
What are the eligibility requirements for the RMD suspension?
None; these provisions are automatic for all individuals otherwise subject to RMDs in 2020.
Who does the RMD suspension apply to?
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) increased the starting RMD age from 70½ to 72 for those who reach age 70½ in 2020 or later. The suspension applies to all individuals otherwise subject to RMDs in 2020. The RMD waiver also applies to those individuals whose required beginning date for their first RMD is the 2020 calendar year and have not taken their first RMD prior to January 1, 2020. Participants who took distributions prior to enactment of the CARES Act because they believed they would be subject to RMD in 2020 may be eligible to contribute the distributed amounts back to the DCP or an IRA allowing rollovers within 60 days from the date of distributions – please review with a Plan representative and your tax advisor for further information.
What if I’m of RMD age and presently receiving distributions?
If you are receiving periodic installment payments from Voya, these payments will continue to be paid unless you act to suspend them. If you choose to suspend periodic installment payments for 2020, you can elect to have them restarted automatically in 2021. You must contact the DCP to suspend payments.
Who do I contact for more information?
For more information please call our toll-free line at 844-523-2457 or one of our local counselors at 213-978-1601. Please also visit LA457.com to learn more.
Please note that the Plan and Voya cannot provide you with tax advice. Prior to taking an action, you should speak with your tax advisor.