IRS updates data on coronavirus-related aid for retirement plans and IRAs
The IRS has updated the Q&A it provided about relieving retirement plans and IRAs related to coronavirus. Information has also been added on issues related to the partial termination of a qualified pension plan under Section 209 of the Taxpayers Safety and Disaster Tax Relief Act of 2020.
The IRS notes that Section 2202 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted March 27, 2020, generally provides for expanded distribution options and favorable tax treatment for coronavirus-related distributions worth up to $ 100,000 Eligible Pension Plans – certain employer pension plans such as Section 401 (k) and 403 (b) to IRAs – to Qualified Individuals and specific rollover rules for such distributions. Section 2202 also increases the limit on the amount a Qualified Person can borrow from an Eligible Non-IRA Retirement Plan and allows a Plan Sponsor to allow Qualified Individuals up to an additional year to repay their Plan Loans.
The Q&A address:
- Who is a qualified person within the meaning of Section 2202 of the CARES Act?
- What is coronavirus-related spread?
- Whether one:
- must pay the additional 10% tax on a coronavirus-related distribution from the z-pension plan or IRA;
- must pay taxes on coronavirus-related distributions; and
- can repay a coronavirus-related distribution.
- What plan loan relief is provided in section 2202.
- It is optional for employers to adopt the distribution and loan rules of Section 2202 of the CARES Act.
- Section 2202 grants participants additional distribution rights or otherwise changes the rules governing plan distributions.
- An administrator can rely on an individual to certify that the individual is eligible to receive a coronavirus-related distribution.
- An eligible retirement plan is required to accept repayment of an attendee’s coronavirus-related distribution. and
- Employees who participated in a company’s qualifying pension plan, then fired due to COVID-19 and reinstated by the end of 2020 will be treated as an employer-initiated severance payment to determine if the plan has been partially terminated.
- How qualified individuals report coronavirus-related distributions, and how plans and IRAs report coronavirus-related distributions.
The IRS says it and the Treasury Department will be issuing guidance on Section 2202 and will post them “in the near future.” The principles followed in IRS Notice 2005-92 are also expected to be applied, which provides guidance on the preferential treatment of dividends and loan plans under Sections 101 and 103 of the Katrina Emergency Tax Relief Act 2005.
Taxpayers’ Safety and Disaster Tax Relief Act of 2020
According to the IRS, Section 209 of the Taxpayer Safety and Disaster Tax Relief Act of 2020 provides that a plan will not be treated as partially canceled during a plan year that includes the period beginning March 13, 2020 and ending March 31. 2021, if the number of active participants falling under the plan on March 31, 2021 is at least 80% of the number of active participants falling under the plan on March 13, 2020.
The IRS says that for the purposes of Section 209, a reasonable, good faith interpretation of the term “active participant to whom the plan applies”, applied in a consistent manner, should be used to indicate the number of active participants to determine to which a plan applies March 13, 2020 and March 31, 2021.
If part of the plan year falls within the period that begins on March 13, 2020 and ends on March 31, 2021, Section 209 applies to a determination of partial termination for the entire plan year.
The IRS says the 80% test will not be applied by identifying the pool of active participants who were covered by a plan on March 31, 2021 and determining if at least 80% of those people were active participants who were active on March 13, 2021 March were covered by the plan. Rather, section 209 applies by counting the number of active participants covered by a plan on each of these two dates. The number of Active Participants covered by a plan counted on March 31, 2021 includes all individuals who are active participants on that date who fall under the plan, regardless of whether the same people were active participants who were on March 13th fall under the plan. 2020.
The IRS also says that section 209 doesn’t just apply to reducing the number of active participants covered by a plan related to the COVID-19 national emergency. Although the first day of the statutory determination period – March 13, 2020 – is the date on which the national emergency for COVID-19 was declared, the provisions of the provision are not limited to reductions related to the national emergency for COVID-19.