Retirement insights from a Colorado PERA perspective

Legislation & Governance

Three Ways the CARES Act Affects Your PERAPlus Accounts

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On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The legislation provides nearly $2 trillion in economic support to individuals, businesses, health care providers, and governments at the federal, state, and local level.

Reports often highlight the CARES Act’s direct cash
distribution of up to $1,200 for individuals. But the bill contains multiple
other sources of relief for individuals who need access to additional funds
amid this health crisis. For PERA members, the CARES Act makes it easier to
access savings in PERAPlus 401(k) and 457 plan accounts, if needed.

Coronavirus-related Distribution

The CARES Act adds a new opportunity to receive up to a
$100,000 distribution from a retirement plan account if an individual: (1) is
diagnosed with COVID-19; (2) has a spouse or dependent diagnosed with the
virus; or (3) is quarantined, furloughed, laid off, has their work hours
reduced, or is unable to work due to lack of childcare.

Typically, individuals are charged a 10-percent penalty in
addition to regular taxes if they make withdrawals from a retirement account,
including a 401(k), before reaching the age 59½. The CARES Act waives the
penalty for coronavirus-related distributions during 2020.  Further, taxes on this distribution can be
spread out over a three-year period. Individuals will have the opportunity to
pay the distribution back (pending future guidance from the IRS).

RMD Waiver

Required Minimum Distributions (RMDs) are waived for 2020
for Defined Contribution (DC) plans. For PERA retirees, no RMDs are required
for the DC Plan, the 401(k) Plan, or the 457 Plan. Defined Benefit Plan RMDs must
still be taken in 2020.

Expanded Loans

Members who are affected by COVID-19 (under the same criteria as listed in the distribution section) can take a loan of their entire account balance (up to $100,000) from a 401(k) or 457 account within 180 days of enactment of the Act.

The due date on loan repayments for members who are affected by COVID-19 is delayed for one year. Prior to the Act, the maximum loan amount was half the account balance (up to $50,000).

Before Using
Retirement Funds, Consider This

This increased flexibility can bring a much-needed source of money in an emergency. However, many financial experts recommend tapping retirement accounts only as a last resort. Withdrawing retirement account funds during a market downturn limits your ability to bounce back when the market recovers. Instead, consider cutting unnecessary expenses and contacting creditors about repayment options before making withdrawals from your retirement accounts.

The development and passage of this law took place rapidly. PERA is working with Voya to interpret and implement these changes as soon as possible. Members with questions are encouraged to call PERA’s Defined Contribution team at (303)398-7665.

Important
Information for PERA Members and Retirees About Receiving Federal Rebates

A major
component of the CARES Act is a rebate of up to $1,200 per individual. These
rebates will be processed by the IRS.

The IRS
plans to use Social Security records and tax returns from 2018 and 2019 to
coordinate these rebates. As a result, PERA retirees who neither receive Social
Security payments nor file federal taxes, as well as PERA members who do not
file federal income taxes, should be aware that they might need to take an
additional step to receive a rebate. Once the IRS determines what this step is,
it will conduct a public awareness campaign to provide additional guidance.

The House Committee on Ways & Means has addressed many common questions about this topic.

Editor’s note: We will update this story as more information becomes available. Last updated: March 31, 2020.

Defined benefitA mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments. Defined contributionA voluntary plan in which participants can save pre-tax income for retirement. Contributions are “defined” by the employee, but the future benefit is not guaranteed.

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