CARES Act Relief for 401(k) Plan Participants – NRECA Employee Benefits Weekly

The Coronavirus Aid, Relief and Economic Security (CARES) Act was recently signed into law. The Act is intended to provide economic relief to the individuals and organizations negatively impacted by the spread of the coronavirus (COVID-19). The Act also includes many provisions that can be implemented at the discretion of retirement plan providers.* NRECA staff carefully analyzed the potential relief options and timelines, and obtained input from benefit plan advisory groups, to inform a decision on what relief could be provided under the NRECA-sponsored 401(k) Pension Plan.

We are excited to announce that participants in the 401(k) Plan that meet the federal eligibility requirements will soon be allowed to initiate one special in-service withdrawal from their 401(k) account by December 30, 2020. Cooperatives do not have to offer in-service withdrawals in order to provide this option to their plan participants. Additionally, co-ops have the ability to opt out of offering this withdrawal option to their participants.

Under this temporary withdrawal provision, eligible participants can elect to make withdrawals up to the lesser of $100,000 or their total account balance (excluding base contributions made by the co-op).

Those who withdraw money will generally be exempt from the normal 10% early withdrawal penalty and the federal 20% withholding tax will be reduced to 10%. Additionally, these participants will have the ability to repay all, or part, of the withdrawal directly to their account through the plan once a year over the next three years using after-tax dollars. Participants are not required to repay the amount withdrawn. Tax obligations that a participant may incur as a result of taking a withdrawal can be spread equally over three years.

Qualifying for relief
To qualify for this specific withdrawal, individuals must meet certain criteria, defined by the legislation, as follows:

Diagnosis with SARS-CoV-2 or COVID-19 as determined by a Center for Disease Control and Prevention-approved test,
A spouse or dependent who has been likewise diagnosed with SARS-CoV-2 or COVID-19, or
Experiencing adverse financial consequences as a result of an individual being quarantined, furloughed or having been laid off or having one’s work hours reduced as a result of COVID-19. Negative financial impact may also result from an individual being unable to work due to lack of child care or the closing or reduction of hours by a business owned or operated by the individual.

Employer opt-out election
If your co-op would like to opt out of offering this withdrawal opportunity to your participants, NRECA is providing a window of opportunity for you to do so. Co-ops who wish to opt out must notify their field representative and will be provided with necessary documentation to sign and send back to NRECA via email no later than May 11, 2020.

Initiating a withdrawal
If you plan on offering your participants the ability to initiate withdrawals under this unique provision, you may wish to use this email template to inform them of the opportunity.

Participants qualified to make a withdrawal under this special provision will need to complete a specific withdrawal and attestation form that we will make available to benefits administrators on the NRECA Employee Benefits website prior to May 11, 2020. We recommend that participants bring completed forms to their co-op’s benefits administrator for review and finalization before sending to NRECA. Those interested in taking a withdrawal as soon as possible should provide forms to NRECA in good order by May 25, 2020 for their distribution to be processed the week of June 1.

You will not have to modify your co-op’s payroll system if the participant wishes to pay back all, or part, of their withdrawal. Repayments, if the participant elects to make them, will need to be made directly to their 401(k) account through NRECA using after-tax dollars.

Loan provision
Unfortunately, due mainly to the limited timeframe offered under the Act, NRECA will not be in a position to make modifications to the 401(k) Plan’s loan provision. However, NRECA has made the decision to temporarily waive the $100 loan origination fee that is assessed for loans initiated between May 15, 2020, and the end of the year. This will ensure that participants are able to obtain the full economic value of the amount they elect to borrow. There is no action required of employers to implement this temporary fee waiver.

Questions
For specific questions, or to opt out of this withdrawal opportunity, reach out to your dedicated NRECA field representative.

*NRECA cannot provide legal or tax advice to co-ops. The information presented here is our interpretation of the laws and regulations. Co-ops should seek the advice of their legal counsel and tax advisor.