As you know, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides immediate relief to individuals affected by the coronavirus pandemic. To help ease your administrative burden and respond to the requests from your plan participants, we will be implementing the distribution and loan provisions of the CARES Act immediately on your behalf, unless you notify your Mutual of America office in writing that you do not wish to have these provisions applied to your plan. (Note that if your plan allows for loans, the Act applies the increased loan limits automatically.) What follows is a brief summary of the relevant CARES Act provisions.
The CARES Act defines qualified individuals as anyone who has a COVID-19 diagnosis, a spouse or dependent with a diagnosis, or anyone who has experienced adverse financial consequences because of COVID-19. We will be relying on an employee's representation that he or she is a qualified individual and will be documenting these requests accordingly.
The CARES Act permits participants to take up to $100,000 from their respective retirement plans as an in-service distribution without penalty, regardless of age. Participants will pay income tax on the distribution, but the tax burden will be spread over three years, unless the participant elects otherwise. Participants who wish to take advantage of this distribution should call our 800 Line or their local Mutual of America office. We will determine if such request is allowable based on your plan’s design or provisions.
The CARES Act also permits participants to repay the distributions to any plan or IRA into which they can roll over funds. If your plan does not permit rollovers, it will need to be amended to permit repayments by participants.
While participants can typically borrow the lesser of $50,000 or 50% of their vested account balance if their plan permits loans, a qualified individual is eligible for increased loan limits of the lesser of $100,000 or 100% of their vested account balance under the CARES Act. For participants in a 403(b) plan, plan and contract provisions require that 120% of the principal loan amount be held as collateral. Please contact Loan Administration for more details.
The CARES Act has also created a new loan repayment suspension rule for qualified individuals. These individuals can request a one-year delay in repaying participant loans. Interest continues to accrue, and when the one-year delay is over, the loan will be re-amortized over the remaining loan term, plus one year.
As with distributions, participants who wish to take advantage of this loan provision should call our 800 Line or their local Mutual of America office, and we will complete their request, subject to your plan’s design and provisions.
The CARES Act has a remedial amendment provision that allows plans to adopt these practices in operation and amend later. We will assist you with the formal amendment process at that time. If you have any questions, please do not hesitate to contact us.