CARES Act Plan Sponsor Options

The CARES Act provides (2) additional options for plan participants to access their retirement funds. With Plan Sponsor approval, coronavirus-related distributions and increased 401(k) Loan limits are available to qualified individuals only* who:

  • Are diagnosed with a coronavirus (COVID-19) illness.

  • Have a spouse or dependent diagnosed with a coronavirus illness.

  • Experience adverse financial consequences as a result of a quarantine, furlough, lay-off, reduction in work hours, business closure, or child care responsibilities.

* Only Qualified Individuals are eligible for the following provisions if adopted by the Plan Sponsor. However, a Plan Sponsor may rely on a participant’s self-certification that they are a qualified individual. 

1. Distribution Options for Qualified Individuals:

Plan Sponsors have the option to permit coronavirus-related withdrawals from a participant’s vested account balance through December 31st, 2020. The distributions are subject to the following limitations: 

  • Limited to $100,000

  • Exempt from 10% early withdrawal penalty.

  • Eligible to be recontributed into an IRA or employer plan within 3 years from the date the distribution is taken, where they will then be treated as indirect rollovers.

  • Amounts not recontributed to an IRA or employer plan are included in gross taxable income, equally, over 3 tax years (beginning with the tax year of the distribution), unless an election is made otherwise. 

2. 401(k) Loan Relief for Qualified Individuals:

Two types of loan relief are provided by the CARES Act:

  1. You can allow qualified individuals to take loans up to the lesser of $100,000 or 100% of the participant’s account balance through September 23. This new limit is reduced by any current loan outstanding.

  2. Upon the request from a qualified individual (see above), plan sponsors may suspend loan repayments due on outstanding loans that are in good order for a period of up to 12 months. This relief expires on December 31, 2020.

The coronavirus related distribution and loan provisions are considered optional. If you have any questions, please contact the Sentinel Team. Thank you.

Sincerely,

Melissa Terito

Lainey Eddlemon