September 16, 2020

Time Is Running Out for Expanded 401(k) Loans Under CARES Act

URGENT! The expanded 401(k) plan loan provisions included in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act are quickly coming to an end! The last day to take advantage of the increased 401(k) loan limits is Tuesday, September 22, 2020!

The federal CARES Act, signed into law on March 27, 2020 in response to the COVID-19 crisis, included several provisions that directly affect 401(k) retirement plans. (See our blog entitled “Congress Passes CARES Act in Response to COVID-19 Crisis, Contains 401(k) Ease-Of-Access and Other Provisions“ for details.) One of the provisions, which has proven to be extremely popular, effectively doubled the previously existing dollar limit, as well as the former account percentage limit, in the case of loans made from 401(k) plans to “qualified individuals” (generally stated, individuals adversely affected by the coronavirus pandemic – see below).

Specifically, for the 180-day period beginning on the date of enactment (March 27, 2020) and ending on September 23, 2020 — and solely with respect to loans made to a qualified individual — the maximum amount that an individual may borrow from his or her 401(k) plan account (reduced by the outstanding amount of any previous loans taken from the plan) is the lesser of:

  • $100,000 (up from $50,000); or
  • 100% of his or her vested account balance (up from 50% of the vested account balance).

KEY TAKEAWAY: On and after September 23, 2020, the dollar limit will once again revert to $50,000, and the percent of a participant’s 401(k) account balance that may be borrowed from will once again become 50%.

“Qualified Individual” Defined. The CARES Act provided a detailed definition of “qualified individual” for purposes of the expanded loan provisions, and IRS guidance issued later in the year expanded that definition. The complete definition, as revised, can be found on our reference page entitled “Coronavirus (COVID-19) Regulations & 401(k) Plan Considerations.“

Special CARES Act Loan Repayment Provisions. Although not a part of the provisions that are expiring on September 23, 2020, the CARES Act also contained special delayed loan repayment provisions for 401(k) plan loans that become due between March 27, 2020, and before the end of the year 2020, which are further described in the blog referenced in the first paragraph, above.

COMMENT: Participants with outstanding 401(k) plan loans may wish to check their loan due dates to determine whether they may be able to take advantage of the special repayment provisions, keeping in mind the soon-approaching December 31, 2020 expiration date for these provisions.

Time is Also Running Out for Coronavirus-Related Distributions! The CARES Act also added special “Coronavirus-related distributions” from 401(k) plans, which are not loans, and which are further described in the blog referenced in the first paragraph, above. Unless Congress acts to renew these provisions – which is considered unlikely at this point — they will cease to be available after December 31, 2020.

COMMENT: Like the expanded 401(k) plan loan provisions, Coronavirus-related distributions have proven to be extremely popular. Participants who find themselves (or a family member) in a position to take advantage of these special time-limited distributions should be aware of the upcoming December 31, 2020 sunset date.

For a more detailed discussion about 401(k) plan participant loans, see “401(k) Participant Loans and Prohibited Transactions.”

The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.

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