Blog Posts: Benefits Law Update

IRS Issues New Guidance on CARES Act Retirement Plan Distributions and Loans

The IRS recently issued Notice 2020-50, which expands relief provided for retirement plan distributions and loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).


Under the CARES Act, a retirement plan may allow participants affected by COVID-19 to elect cash distributions in an amount not to exceed $100,000. The participant may include the coronavirus-related distribution in income over a three-year period or pay it back in a tax-free rollover within the three-year period. The 10% income tax penalty on early retirement plan distributions is waived.

The CARES Act defines a “coronavirus-related distribution” as a distribution from an eligible retirement plan[1] made on or after January 1, 2020, and before December 31, 2020, to a qualified individual. A qualified individual was defined initially as:

  • a participant who is diagnosed with COVID-19;
  • a participant whose spouse or dependent is diagnosed with COVID-19; or
  • a participant who has experienced adverse financial consequences due to COVID-19 because he or she:
    • is quarantined, furloughed, laid off, or has reduced hours;
    • is unable to work due to the unavailability of childcare; or
    • owns or operates a business that has had to close its doors or reduce hours.

IRS Notice 2020-50 expands the definition of a qualified individual. In addition to the above, a qualified individual now includes a participant who has experienced adverse financial consequences due to COVID-19 because:

  • the participant has experienced a reduction in his or her pay or self-employment income, a rescission of a job offer, or the delay of a job start date; or
  • the participant’s spouse or a member of the participant’s household due to COVID-19:
    • is quarantined, furloughed, laid off, or has reduced hours;
    • is unable to work due to the unavailability of childcare;
    • owns or operates a business that has had to close its doors or reduce hours; or
    • has experienced a reduction in pay or self-employment income, a rescission of a job offer, or the delay of job start date.

For this purpose, a “member of the participant’s household” is someone who shares the participant’s principal residence. This may include a significant other, roommate, relative, or anyone else who shares the participant’s principal residence. Accordingly, Notice 2020-50 greatly expands the number of retirement plan participants who may qualify for a coronavirus-related distribution.

In addition, the Notice clarifies that an employer is not required to provide a Section 402(f) notice, withhold 20% of the distribution amount, or offer rollover treatment with respect to a corona virus-related distribution.


In general, a participant’s aggregate loans from a qualified retirement plan are limited to the lesser of (i) $50,000 (reduced by the excess of the highest outstanding balance of loans during the one-year period ending on the day before the date the loan is made over the outstanding balance of loans from the plan on the date that the loan is made) or (ii) the greater of $10,000 or 50% of the participant’s vested account balance under the plan.

For loans made to a qualified individual on or after March 27, 2020 and before September 23, 2020, the CARES Act permits, but does not require, a plan to increase the aggregate dollar amount to $100,000 and the percentage of a qualified individual’s account that may be borrowed to 100%. In the case of a qualified individual with an outstanding loan on or after March 27, 2020, the CARES Act also permits, but does not require, a plan to suspend loan repayments with a due date that occurs during the period beginning on March 27, 2020 and ending on December 31, 2020 for one year.

Notice 2020-50 provides that the expanded definition of a qualified individual for coronavirus-related distributions applies with respect to loans. In addition, the Notice provides a safe harbor for suspending and repaying loans.


Notice 2020-50 clarifies that plan administrators may rely on a participant’s certification that he or she is a qualified individual, unless the administrator has actual knowledge to the contrary. The Notice includes a sample certification.

Adoption of Rules

The new coronavirus-related distribution and loan rules are not mandatory. Employers may choose whether to implement these rules under their retirement plans. However, even if an employer does not adopt the rules under its plan, a qualified individual may elect to treat a distribution as a coronavirus-related distribution on his or her individual income tax return.

Cancellation of Deferral Election under a Nonqualified Deferred Compensation Plan

A nonqualified deferred compensation plan that is subject to Section 409A of the Internal Revenue Code may permit cancellation of a deferral election due to an unforeseeable emergency or hardship distribution. Notice 2020-50 provides that a coronavirus-related distribution will be considered a hardship distribution. Accordingly, a nonqualified deferred compensation plan may provide for or permit cancellation of a deferral election due to receipt of a coronavirus-related distribution. The deferral election must be cancelled, not merely postponed.

Please contact a member of our Employee Benefits & Executive Compensation Group if you have any questions regarding IRS Notice 2020-50.

[1] In general, an “eligible retirement plan” includes a 401(k) plan, 403(b) plan, or a governmental 457(b) plan. A participant who is a qualified individual may treat a distribution from a defined benefit plan or a money purchase pension plan as a coronavirus-related distribution. However, the participant must experience a distribution event under that plan, such as termination of employment or attaining normal retirement age, in order to receive a distribution.

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