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What Everyone Should Know about CARES Act Provisions for Access to Retirement Funds and Other Miscellaneous Relief Programs During the COVID-19 Health Emergency

Posted on in BGL Law

Crystal Lake Criminal Defense LawyerOn March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was passed by Congress and signed into law. 

The CARES Act is the largest economic bill in U.S. History, calling for nearly $2 trillion in spending, in part as an economic stimulus package to benefit small businesses and individuals.

Leaving aside provisions within the CARES to assist businesses, while the unemployment assistance program has been a prominent feature in the landscape of various coronavirus relief programs, there are a number of other such programs that may offer financial assistance for individuals, including:

1).        tax rebates;

2).        access to distributions from certain defined contribution plans, such as 401(k) plans, 403(b) plans and profit sharing plans, without penalty;

3).        student loan deferment;

4).        mortgage forbearance; and

5).        relief to certain qualified tenants by way of a moratorium on actions for rent. 

The attorneys at Botto Gilbert Lancaster, LLC, are experienced in all aspects of estate planning and consumer rights.

For further information, or legal and practical guidance, or for other questions relating to the various State and federal laws created to address the COVID-19 health emergency, contact Botto Gilbert Lancaster, PC, at (815) 338-3838, or by email.  

B.      CARES Act Provisions for Access to Retirement Funds and Other Miscellaneous Relief Programs

1.  CARES Act $1,200.00 tax credit/rebate

Section 2201 of the CARES Act generally provides for recovery rebates of up to $1,200.00 (or $2,400.00 for individuals filing joint returns), plus an additional $500.00 for each child.

This rebate is credit reduced by 5% of the taxpayer’s adjusted gross income as exceeds:

$150,000.00 in the case of a joint return;

$75,000.00 for individuals; and

$112,500.00 for individuals filing as head of household.

The advanced payment of the recovery rebates will generally be based on the AGI reported on the most recently filed tax returns, so that delaying the filing of the 2019 tax return may be beneficial for some.

2.  Student Loans

a).        Suspension of principal and interest for certain federal student loans

All payments of principal and interest for certain federal student loans are suspended. The suspended payments are treated as if made for consumer credit reporting. The CARES Act also waives or modifies requirements with respect to the receipt of federal education grants, and allows deviations in the use and distribution of such grants. Further, provisions are made for students who have withdrawn from school or relocated due to the COVID-19 crisis.

b).       Student Loan Repayment-Employee Education Assistance Program

Employers may provide a student loan repayment benefit to any employee on a tax-free basis of up to $5,250.00 annually.  The provision applies to any student loan payments made by an employer on behalf of an employee after March 27, 2020, and before January 1, 2021.

3.  Retirement Plan Relief

a).        Introduction

The CARES Act provides for additional relief for individuals with respect to distributions and participant loans under defined contribution plans. The deadline for amending retirement plans for these changes is the last day of the first plan year beginning on or after January 1, 2022. These provisions can be implemented immediately, and offer employees and employers additional options to address the potential financial hardships arising as a result of the COVID-19 situation.

b).       Coronavirus-Related Distributions

CARES Act Section 2202(a) eliminates the 10% tax penalty generally imposed by IRC §72(t) (26 U.S.C. §72) on withdraws from qualified retirement plans as defined in 26 U.S.C. §4974(c).  Section 4974 in turn generally defines qualified retirement plans as:

those described in IRC §401(a) (26 U.S.C. §401(a)) as a “trust, created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries;”

annuity plans described in IRC Section 403(a), dealing with employer contributions to annuities for the benefit of an employee meeting the requirements of IRC Section 404(a)(2);

annuity plans described in IRC Section 403(a), dealing with employer contributions to annuities for the benefit of an employee meeting the requirements of IRC Section 404(a)(2);

Section 403(b) retirement accounts for certain employees of public schools, governmental institutions and tax-exempt organizations;

IRAs (IRC §408(a));

Individual retirement annuities (IRC §408(b));

or any other accounts deemed by the IRS to be qualified retirement plans.

FINRA has indicated that 401(k) plans are also qualified retirement plans for purposes of the shelter from the 10% tax penalty.

The 10% tax penalty is eliminated for “coronavirus-related distributions for any taxable year not to exceed $100,000.”

Section 2202 is somewhat ambiguous in its inclusion of “eligible retirement plans,” which seems also to include deferred compensation plans.

While distributions remain subject to federal income taxation, they may be ratably spread over the three taxable year period beginning with 2020. An individual who takes a coronavirus-related distribution may repay the distribution to an eligible retirement plan during the three-year period beginning on the day after the date of the distribution. Repayments within the three-year period will result in the distribution not being subject to federal income taxation, or in the case that the income tax has already been paid, permit the individual to receive a refund of the previously paid federal income tax.

“coronavirus-related distributions” are defined as those made on or after January 1, 2020, and before December 31, 2020, to an individual:

who is diagnosed with COVID-19, or whose spouse or dependent is diagnosed with such virus or disease; or

“who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease;”

“unable to work due to lack of child care due to such virus or disease;”

“closing or reducing hours of a business owned or operated by the individual due to such virus or disease;”

“or other factors as determined by the Secretary of the Treasury.”

The CARES Act temporarily waives the required minimum distribution rules for 2020 with respect to certain defined contribution plans and IRAs.

c).        Enhanced Participant Loans

For 180 days from the date of passage of the CARES Act, participants who qualify for coronavirus-related distributions to take loans of up to the lesser of: (a) $100,000 (increased from $50,000); or (2) 100% (increased from 50%) of the participant's vested account balance. In addition, loans from qualified retirement plans with respect to participants who qualify for coronavirus-related distributions are subject to participant loan delayed repayment relief. This relief provides that any due date for a participant loan repayment that occurs during the period beginning March 27, 2020, and ending December 31, 2020, shall be delayed for one year.

d).       Waiver of Required Minimum Distribution Rules

CARES Act, Section 2203 generally calls for waiver of required minimum distribution rules for: 403(a) plans, 403(b) plans, deferred compensation plans and (§408) individual retirement plans.

FINRA has indicated that 401(k) plans and Section 457(b) deferred compensation plans are also qualified retirement plans for purposes of the CARES Act waiver of minimum distribution rules.

            e).        Funding Relief for Defined Benefit Plans

Required minimum contributions for a single employer defined benefit plans that are due during the 2020 calendar year are not required to be made until January 1, 2021, with accrued interest from the original payment due date to the actual payment date. Plan sponsors of defined benefit plans may also treat the adjusted funded target attainment percentage calculated as of December 31, 2020, as the percentage applicable to plan years which include the 2020 calendar year for purposes of applying the funding-based limitation on shutdown benefits and other contingent event benefits.

4.        Stay of Adverse Credit Reporting of Delinquent Consumer Debt

Pursuant to Title IV, Subtitle A, of the Cares Act, designated the “Coronavirus Economic Stabilization Act” (“CESA”), from January 31, 2020, through the date which 120 days after the later of passage of the CARES Act, or termination of the national emergency declaration, reports to credit reporting agencies must show accounts current, even where there is a forbearance or other agreement to defer or modify payments of a person affected by the COVID-19 crisis.

5.         Forbearance, and Moratorium on Foreclosures, for Federally Backed Mortgages

Pursuant to CESA, borrowers of federally backed family mortgage loans for residential properties (assets designed for occupancy of 1 – 4 families) may submit a forbearance request if they are experiencing financial hardship due to the COVID-19 crisis.  The lender must grant the request, without additional fees, penalties, or interest, for a period of up to 180 days, subject to another 180 day extension at the borrower’s request.

Foreclosure action is prohibited for the 60-day period beginning March 18, 2020.

The Act also affords forbearance and foreclosure protection to borrowers of federally backed family mortgage loans for multi-family residential properties (designed for occupancy of 5 or more families).

6.         Moratorium on Eviction Proceedings for Certain “Covered Dwellings”

a).        Federal (CARES Act) qualified moratorium on eviction proceedings for certain “covered dwellings.”

There appears to be some confusion about the ability of landlords to proceed with eviction proceedings against tenants in light of laws designed to address the COVID-19 health emergency.

It is important to note that the most prominent of those laws, the CARES Act, includes a temporary moratorium on evection proceedings only against tenants with or without a lease on “covered dwellings.” 

b).       What is a “covered dwelling.”

“Covered dwellings” are generally defined as those occupied pursuant to a residential lease, or without a lease, on a “covered property.”

“Covered properties” in turn are generally defined as those:

participating in a covered housing program under the Violence Against Women Act;

participating in the rural housing voucher program; and

financed by a federally backed mortgage loans for residential property.

The term “covered property” is defined in such a way that premises that are not: secured by a first or subordinate lien; and/or residential property, are not subject to the Act.

Both the terms “covered dwelling” and “covered property” are also defined in such a way that commercial leases are not subject to the Act.

c).        What a landlord of a “covered dwelling” cannot do.

For 120 days beginning on the date of enactment of the CARES Act, the lessor of a covered dwelling may not:

initiate legal proceedings to recover possession of the covered dwelling from the tenant for nonpayment of rent or other fees or charges; or

charge fees, penalties, or other charges to the tenant related to non-payment of rent.

In addition, landlords of covered dwellings may not from issue a notice to vacate until after the 120-day period after passage of the Act, and then may not require the tenant to vacate the premises any sooner than another 30 days after the date on which the lessor provides the tenant with notice to vacate.

d).       What a landlord of a “covered dwelling” may be able to do, or can do.

Due to some ambiguity in the foregoing language from the Act itself, it appears that a landlord of a covered dwelling may serve notice to vacate, and initiate legal proceedings, in order to recover possession for reasons other than nonpayment of rent or other fees or charges.

Whether Courts will construe the Act for or against the tenant or landlord in actions to recover possession for reasons other than nonpayment of rent or like charges given the potential ambiguity of the Act remains to be seen.

And the tenant is still obliged to meet any contractual duties, including payment of rent and other fees and charges.

e).        Other (State) limitations and qualifications on eviction proceedings.

As a practical matter, even lessors of non-covered dwellings must wait for the Courts to return to normal operations before any cases for possession or rent of leased premises are heard.

Moreover, Governor Pritzker issued an Executive Order directing all State, county and local law enforcement in Illinois to cease enforcement of all eviction Orders for residential premises until April 8, 2020.

Whether this Executive Order will be extended remains to be seen.  However, it does highlight the absence in the Act of any prohibition against going forward with eviction actions  already in progress prior to passage of the Act.

            Such local actions caution both landlords and tenants to be mindful of how Executive Orders may affect eviction proceedings.

7.  CARES Act Telehealth Access

CARES Act Section 3701 provides that high-deductible health plans may cover all telehealth services prior to a covered individual reaching the applicable deductible, without risking the plan’s status as a high deductible health plan, for plan years beginning on or before December 31, 2021.  Employees covered under a high deductible health plan providing these services prior to reaching the deductible will continue to be eligible to make contributions to a health savings account.

8.  Relief Programs Outside the CARES Act and FFCRA

a).        Introduction

So far, the CARES Act, and FFCRA, have been the main sources of relief for individuals, who, unlike small businesses, have not seen similar major State-run programs to directly distribute relief over and above funding non-profit and like social support organizations.  However, individuals should continue to keep informed about relief available from other sources, including through State programs.

b).       Illinois income tax extension

Illinois has delayed its income tax filing deadline from April 15 to July 15.

Illinois State Bar Association State Bar of Wisconsin Crystal Lake Chamber of Commerce Illinois Trial Lawyers Association McHenry County Bar Association
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