Late last year, Congress passed another COVID-19 relief bill, known as the Consolidated Appropriations Act, 2021 (CAA), which was signed into law by former President Trump on December 27, 2020. This new piece of legislation was enacted to, among other things, extend several provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Below please find further explanation of which MidAmerica benefit plans are affected by the CAA and what the new legislation means for participants in these programs.
MidAmerica’s Retirement Plan Amendment Response
MidAmerica has thoroughly reviewed the CAA and, in the best interest of both the participant and the organization, have determined the following retirement plan amendment defaults. If you currently provide a Special Pay Plan, Employer Sponsored Plan, 3121 FICA Alternative Plan or APPLE Plan and do not want the below defaults enabled for your plan, the employer must contact MidAmerica by February 26, 2021.
MidAmerica will default to the following retirement plan CAA amendments:
- Disaster Withdrawals, Hardships and Loans. We will amend the plan to allow these additional provisions in accordance with the CAA.
A Complete Breakdown of the New Rules for Retirement Plans
(Special Pay Plans, Employer Sponsored Plans, 3121 FICA Alternative Plans and APPLE Plans)
The CAA takes disaster relief into consideration and allows additional distributions from retirement plans for those who have experienced economic loss due to a “qualified disaster” (not COVID-related) and whose principal residence is located in a presidentially declared disaster area. A qualified disaster event must have taken place on or after December 28, 2019 and before December 27, 2020 (the date the CAA was signed into law). The event must have been declared a disaster between January 1, 2020 and February 25, 2021.
Under the CAA, plans can be amended to provide additional distribution opportunities for individuals to receive withdrawals or loans if they were affected by such a declared disaster.
Participants can receive a distribution of up to $100,000 (or their vested account balance, if less) for disasters that began on or after December 28, 2019 and that ended on or before December 27, 2020. The distribution must be taken within 180 days of December 27, 2020 (that is, before June 25, 2021). If the participant is impacted by multiple disasters, this dollar limit applies separately to each disaster.
It’s important to note that disaster distributions are subject to a 10% early distribution penalty and are taxed equally over three (3) years unless the participant chooses to be taxed in the distribution year. The distributions may also be repaid within three (3) years of the distribution date.
Participants may repay hardship distributions or first-time homebuyer distributions taken to purchase or construct a principal residence if:
- they received the distribution 180 days before the disaster or up to 30 days after the disaster period,
- the principal residence was in the disaster area, AND
- the participant did not use the distribution because of the disaster.
If taking advantage of this hardship relief, the participant must recontribute the hardship withdrawal during the period that begins on or after the first day of the incident period of a qualified disaster and before June 25, 2021.
The CAA also provides a contingency for participants whose principal place of residence at any time during the incident period is located in the qualified disaster area, and that participant has experienced an economic loss as a result of the qualified disaster. Such “qualified individuals” may be able to take loans for up to $100,000 or their vested account balance, whichever is less. The increased loan limit is available to eligible participants from December 27, 2020 until June 25, 2021.
Additionally, under the new law, there is some relief for new and existing loans, permitting a delayed repayment for plan loans that are outstanding on or after the first day of the incident period of the disaster by one year (or if later, June 25, 2021), provided the payment is otherwise due within the period beginning on the first day of the disaster and ending June 25, 2021.
Amendments for Retirement Plans
The changes outlined in the CAA are not mandatory. However, if the plan sponsor of a governmental retirement plan wishes to incorporate any of the changes, the deadline to amend their plan is the last day of the first plan year beginning on or after January 1, 2024 (or December 31, 2024 for calendar year plans).
With COVID-19 cases continuing to surge in the U.S. and a new administration preparing to enter the White House, the Consolidated Appropriations Act, 2021 will probably not be the last piece of legislation to come out of Washington, D.C. related to the pandemic and its effect on the American economy. MidAmerica will continue to monitor the situation and will provide information as it becomes available.
Have questions? We’re here to help.
If you have questions about the CAA, its impact to your plan or the MidAmerica amendment defaults, don’t hesitate to contact our Account Management team at [email protected]. You can also download MidAmerica’s complete CAA bulletin by clicking here.