GOP Legislative Package Would Alter Retirement Plan and HSA Provisions as Part of COVID-19 Pandemic Response

Senate Republican coronavirus response legislation—the Coronavirus Aid, Relief and Economic Security, or CARES Act—has been proposed in order to assist Americans affected by the COVID-19 pandemic. The proposal has multiple provisions that would affect retirement savings arrangements and health savings accounts (HSAs). This legislative proposal is being monitored closely, and further developments will be shared as warranted.

Retirement Savings Provisions

  • Would extend the income tax return filing deadline from April 15, 2020, to July 15, 2020. (The IRS has since issued Notice 2020-18, which officially delayed the deadline to July 15, 2020.)
  • Would exempt up to $100,000 withdrawn from an Eligible Retirement Plan from the 10% early distribution penalty tax for Coronavirus-Related Distributions (CRDs).
    • A CRD is defined as a distribution made on or after the date of enactment and before December 31, 2020, to a Qualified Individual, defined as
      • an individual (or the spouse of the individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test;
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.
    • An Eligible Retirement Plan is defined as a qualified retirement plan, including a 403(b) plan, governmental 457(b) plan, SEP plan, SIMPLE IRA plan, or an IRA.
    • CRDs would be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000.
    • There would be a 3-year repayment period, in one or more repayments, not to exceed the amount distributed. Taxpayers could recontribute these amounts to any retirement plan or IRA that the Internal Revenue Code permits.
    • CRDs that are recontributed within the 3-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs would be taxed ratably over a 3-year period, unless a taxpayer elects otherwise.
    • CRDs are not considered eligible rollover distributions. Plan sponsors will need to adjust their 402(f) statements to explain that these distributions are not subject to the mandatory 20% withholding and direct rollover rules (though they are still eligible for rollover).
  • The retirement plan loan maximum for a Qualified Individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) would increase to the lesser of $100,000, or 100% of a participant’s vested balance.
  • Retirement plan loan repayment dates between the date of the legislation’s enactment and December 31, 2020, could be delayed for 1 year, with the amortization period—including the 5-year repayment deadline—adjusted accordingly.
  • Retirement plan amendments for these provisions would generally be required by the last day of the 2020 plan year (government plans would have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.

HSA-Related Provisions

  • Telehealth and remote care services associated with the coronavirus pandemic could be paid by a health insurance plan without first satisfying a deductible, and would not be treated as violating HSA requirements.
  • Certain “direct primary care” arrangements for services between health care providers and clients would be treated as not violating HSA requirements.
  • Over-the-counter menstrual care products would be considered qualified medical expenses for HSA purposes.