What Savings and Retirement Plans May and Must Do to Facilitate COVID-19 Loan Relief

Plan administrators may permit participants and beneficiaries to access their own plan benefits to address their cash-flow problems without adverse tax consequences with more favorable plan loan policies. These policies are not limited to the CARES Act provisions permitting “qualified individuals” to obtain more generous loans and giving those individuals one-year deferrals of loan due dates. Loan repayment relief and loan percentage increases will provide more vital COVID-19 relief than maximum loan amount increases because most plan accounts are substantially below the current $50,000 loan maximum.Plan administrators may help all their participants and beneficiaries by choosing to make loans available, having generous cure period for loan payment default, and deferring loan dues dates for employees on furloughs. They must also defer all loan dates between March 27, 2020 and July 14, 2020 until July 15, 2020. Finally, an individual whose outstanding plan loans were an offset against the individual's benefits following the termination of employment may avoid taxation on such a deemed distribution by contributing such amount to another plan or individual retirement arrangement before the individual files her or his federal income tax return for the tax year of the distribution