Coronavirus Related Distribution & Loan Provisions FAQ
Updated April 2, 2020
The CARES Act, passed on March 27, 2020, provides financial relief to those who are directly affected by the COVID-19 crisis. Although the CARES Act has a comprehensive set of provisions, this FAQ focuses specifically on the programs pertaining to the Stanford Contributory Retirement Plan (SCRP).
How does the CARES Act provide financial relief as it relates to the SCRP?
The CARES Act has introduced the following:
- Temporary Coronavirus Related Distribution of up to $100,000
- Temporary increase available for plan loans, from $50,000 to $100,000
- Postpones existing loan repayments for up to a year
- Waiver of Required Minimum Distributions (RMDs) for 2020, due Dec. 31, 2020
Who is eligible to participate in these new provisions in the CARES Act?
The distribution and loan provisions apply to individuals and their spouses or dependents who have been diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC).Additionally, individuals who experience adverse financial consequences as a result of being quarantined, furloughed, laid off, given reduced working hours, or who are unable to work due to lack of child care are also eligible.Please note, that persons who continue to work but suffer a salary reduction as a result of business contraction due to the coronavirus are not eligible to participate in this program.
How does the new Coronavirus Related Distribution work?
Employees who are eligible to participate (as listed above) may request up to $100,000 from their SCRP account. There are key differences between this distribution and ordinary hardship withdrawals offered in the SCRP:
Contribution sources – Eligible employees requesting a Coronavirus Related Distribution may access their entire SCRP account, including employer basic and matching contributions. Ordinary hardship withdrawals are limited to employee before-tax and after-tax contributions and related earnings.
No penalty – Eligible employees under the age 59-1/2 who request an ordinary hardship withdrawal are usually assessed a 10% penalty in addition to regular income taxes. The penalty is waived for theCoronavirus RelatedDistribution, regardless of your age.
Repayment – Eligible employees can choose to repay the distribution at any time over the three-year period commencing on the date the withdrawal was received. Repayment is not required, and taxes related to this withdrawal may be paid over a three-year period. Ordinary hardship withdraw also do not have this option.
Coronavirus Related Distributions can be paid to a qualified plan or an IRA, if it is permissible under the IRS code. Ordinary hardship withdrawals are not eligible for rollovers.
Deadline – Coronavirus Related Distributions must be completed by Dec.31, 2020. Ordinary hardship withdrawals do not have an expiration date.
What were the changes made to the SCRP’s loan provisions?
Increased loan amount –The maximum loan amount available is limited to $50,000, less the highest loan balance in the past 12months.For example, if you had an outstanding loan balance of $15,000 in the past 12months, and requested a new loan, you would only be eligible to request a new loan for $35,000 ($50,000minus $15,000). The new, temporary limit is$100,000, so eligible employees can now request a loan up to $100,000, less the highest loan balance in the past 12 months. Using the same example, if you are an eligible employee, you can now request a new loan for $85,000 ($100,000minus $15,000). Ordinary loan amounts are limited to 50% of vested account balances, but now 100% of vested account balances are available.
Two loans available –The SCRP ordinarily limits plan participants to one outstanding loan at a time.Eligible employees may now request a new loan even if you have an outstanding loan.
Suspension of loan repayments – Eligible employees can postpone loan repayments for up to a year and increase the five-year limit to include the one-year delay for 2020. Subsequent loan repayments must be adjusted to reflect the delay in the 2020 loan repayment and any interested accruing during the delay.
Deadline –The increased loan amount is only valid for 180 days after the effective date of the CARES Act, which isSept.23, 2020.The suspension of loan repayment is available for loans up to Dec.31, 2020.
How do we participate in any of these provisions in CARES Act program?
Contact your SCRP vendor – Contact Fidelity to request a Coronavirus RelatedDistribution, initiate a new loan, and/or suspend loan repayments.Fidelity will provide you the proper distribution paperwork to complete, including obtaining a notarized spousal consent, if applicable. If your account is with TIAA, contact TIAA to transfer your funds to Fidelity, and Fidelity will assist you with your Coronavirus Related Distribution and/or loan.
Self-certification – Since you will self-certify that you are eligible to participate in these provisions, you will have to provide proper documentation if audited by the IRS.
Contact Fidelity (888-793-8733) or TIAA(800-842-2776).
Are Required Minimum Distributions (RMDs) required in 2020?
No.This waiver applies for 2019 RMDs due on April 1, 2020, and 2020 RMDs due by Dec.31, 2020. To stop automatic recurring RMD payment for 2020, contact your SCRP vendor, Fidelity or TIAA.
Is there any financial relief under the Staff Retirement Annuity Plan (SRAP)?