The Coronavirus Aid, Relief and Economic Security Act (CARES Act), signed into law on March 27, 2020, was created to mitigate the vast economic challenges resulting from the COVID-19 pandemic. It allows for two notable provisions related to the FCMM Retirement Plan: The waiver of all 2020 Required Minimum Distributions (RMDs); and a special distribution type for certain Members directly affected by the COVID-19 virus. This article has been updated as of June 2020 to reflect the guidance provided by the IRS in Notice 2020-50 and Notice 2020-51.
Waiver of 2020 Minimum Distribution Requirement
Required Minimum Distributions (RMDs) are the minimum amount the IRS mandates be withdrawn from one’s retirement account each year, starting with the year an individual reaches age 72 (age 70 ½ for those born prior to July 1, 1949). Once started, RMDs must continue to be paid out annually to avoid the IRS imposed 50% tax penalty on the amount not received by the account holder. The CARES Act temporarily suspends the minimum distribution requirement for 2020 from defined contribution plans as well as Individual Retirement Accounts (IRAs).
Accordingly, all FCMM Retirement Plan Members previously assumed to have a minimum distribution requirement for the current calendar year – this includes Members who would have received their first RMD in 2020 and those Members whose RMD was initiated in a previous year – have automatically been waived of this obligation. Consequently, FCMM’s standard practice of distributing RMD balances to our Members on December 1 will not occur in 2020. This practice will resume for 2021. For Members relying on an RMD for income in 2020, it will be necessary to submit a Cash Withdrawal Request in order to receive a distribution this year.
For clarification, if a Member already requested and received a “2020 RMD” payment prior to the passing of the CARES Act, those amounts are no longer considered RMD amounts as this provision is retroactive to January 1, 2020. In June 2020, the IRS published Notice 2020-51 providing guidance for Members who wish to return these funds to the Plan, allowing indirect rollovers of waived RMDs through August 31, 2020.
Coronavirus-Related Distributions (CRDs)
The CARES Act provides for a new distribution type called a Coronavirus-Related Distribution, available only in 2020, to “Qualified Individuals” within defined contribution plans.
A Member may be considered a “Qualified Individual” if one of the following conditions apply:
- A Member who is diagnosed with COVID-19 or SARS-CoV-2 by a CDC approved test.
- A Member whose spouse or dependent is diagnosed with COVID-19 or SARS-CoV-2 by a CDC approved test.
- A Member who experiences adverse financial consequences due to COVID-19 or SARS-CoV-2 resulting in:
- The Member’s quarantine, furlough, layoff, or reduction in work hours;
- The Member’s inability to work due to lack of childcare; or
- The closing or reduction in hours of a business owned by the Member.
- A Member whose pay or self-employment income is reduced due to the pandemic, or who has had a job offer rescinded or a new job’s start date delayed due to COVID-19.
- A Member whose spouse or a member of his/her household* has suffered the following financial effects due to the pandemic:
- Layoff, furlough, quarantine, reduced hours, or reduced pay or self-employment income;
- Cannot work due to childcare unavailability; or
- Has had a job offer rescinded or the start date of a new job delayed;
- A business owned or operated by the Member’s spouse or a member of the Member’s household has closed or reduced hours due to COVID-19.
Note: Situations 4-6 above were not initially included in the CARES Act legislation and were added in June 2020, expanding the definition of Qualified Individual.
*For purposes of determining eligibility as a Qualified Individual, the “Member’s household” consists of anyone who shares the primary residence of the Member.
For those that are eligible, the CRD provides up to a total of $100,000 in the year 2020 from all retirement accounts owned by the Qualified Individual and is exempt from the 10% early withdrawal penalty. Additionally, the CARES Act allows for Members to spread out the income tax liability evenly across three tax years, starting in 2020. The CRD is not a loan; however, a CRD recipient does have the option to voluntarily return all or a portion of the CRD amount back to an eligible retirement plan within a three-year period, beginning on the day after the date on which the CRD was received. Please note, due to the potential reporting complexities of CRDs for both FCMM and the Member, FCMM is not designating CRDs as housing allowance eligible.
FCMM has implemented the above CARES Act provisions, specific to the year 2020, effective immediately. Members who would like to return a 2020 RMD to the Plan or evaluate their available distribution options, should contact FCMM Client Services at (800) 995-5357 or at email@example.com.