In a legislative effort to provide support and protection to the many people who have been financially impacted by the COVID-19 crisis, Congress recently passed the new Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its aim is to assist those who may be in need due to the pandemic. The following three (3) provisions will apply to the 401(k) effective June 1, 2020:
1. Initiating New Loans
The CARES Act increases the maximum loan amount from the lesser of $50,000 or 50% to the lesser of 100% or $100,000 of the participant’s vested balance. In order to benefit from this increased maximum, new loans must be initiated on or before September 22, 2020. Coronavirus-related loans can only be initiated by calling Empower. Coronavirus-related loans cannot be initiated from Empower’s website.
2. Delaying Loan Payments for Existing Loans
If you currently have an outstanding loan balance, and loan payments are due between now and December 31, 2020, you may be able to delay them. Remaining loan payments beginning in 2021 will be re-amortized, and the loan maturity date will be extended to reflect those repayment delays plus accrued interest.
To be eligible for either of the loan provisions described above, you must meet at least one of the following criteria:
- You have been diagnosed with COVID-19 with a test that has been approved by the Centers for Disease Control and Prevention
- Your spouse or dependent has tested positive for COVID-19
- You have experienced negative financial consequences, such as being furloughed, quarantined or laid off — or you are facing reduced working hours or the inability to work due to lack of childcare because of COVID-19
Before Accessing Money from Your Retirement Account
Because taking a loan from your account can have a material effect on your ability to accumulate retirement savings, it’s always a good idea to speak with a financial professional so you can stay on track — and stay the course. To model various loan scenarios, visit the Empower Retirement participant website and access the “Loan cost calculator” found on the left-hand side of The Pearson Retirement Plan “Account” page, under “Loans and Withdrawals.” This tool, as well as other valuable online resources, are always available to help you reach your long-term goals. As your savings situation evolves, you may have additional concerns in the days, weeks and months ahead. Please contact Empower at 1-844-465-4455, if you have questions, and to learn about the options described in this article.
3. Required Minimum Distributions (RMDs)
The CARES Act eliminated the requirement to take a 2020 required minimum distribution. A required minimum distribution is the minimum amount of funds you must withdraw from your account each year or be subject to a 50% excise tax on the amount not distributed as required. You are required to take an RMD when you attain age 72 (or if you turned age 70 if your birthday was prior to January 1, 2020). If you were subject to a 2020 RMD, you are no longer required to withdraw your 2020 RMD amount. If this applies to you, you should have received communication from Empower outlining your options and any actions you need to take. Please contact Empower at 1-844-465-4455 if you have any questions or want to better understand your options.
Sources: American Cancer Society, Association for Behavioral Health & Wellness, Campaign for Tobacco-Free Kids, Centers for Disease Control. World Health Organization, EMPOWER Retirement, Mayo Clinic, National Institute of Mental Health, Willis Towers Watson Wellbeing Ideas for Remote Employees