Consolidated Appropriations Act Provides Coronavirus Relief

On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (the “Act”), into law, providing direct stimulus payments to certain individuals, extended unemployment benefits, funding for coronavirus-related spending, funding for continued government operation and extensions of numerous expiring tax provisions. In addition, the new law included retirement-plan-related provisions and expanded Paycheck Protection Program (PPP) provisions.

Provisions Affecting Retirement Plans

Partial Plan Terminations

In general, a plan will be considered to have been “partially terminated” when the employer sponsoring the plan reduces the number of covered participants by more than 20% in a given year. As a result of a partial termination, the participants who lost their jobs must immediately be 100% vested in their account balance. The Act provides relief from this rule for employers that had to reduce their workforce during 2020 but who later rehired those workers. Under the provision, no partial plan termination will occur if the number of active participants on March 31, 2021, is at least 80% of the number of active participants on March 13, 2020.

Coronavirus-Related Distributions

Earlier in 2020, the CARES Act permitted defined contribution plans to allow certain participants to take special “coronavirus-related distributions” (CRDs) of up to $100,000 without having to meet otherwise normal distribution requirements (e.g., separation from service, reaching age 59½, death or disability). While the ability to take CRDs expired on December 30, 2020, the Act permits distributions from money purchase pension plans to retroactively be treated as CRDs if other conditions are met.

Non-Coronavirus Disaster Distributions and Loans

The Act allows for special treatment for qualified plan distributions and loans made to individuals living in a federally declared disaster area, other than any disaster declared related to the coronavirus pandemic.

  • Distributions: For eligible individuals who sustained economic loss as a result of the disaster, distributions of up to $100,000 may be made, which will not be subject to the 10% excise tax for early distribution, will be included in income ratably over a three-year period and will not be taxed at all if repaid within three years. The provision applies to “qualified disaster distributions,” which are defined as any distribution from an eligible retirement plan made on or after the first day of the incident period of a qualified disaster and before June 25, 2021.

  • Home Purchase: The Act allows individuals who took a hardship distribution for the purchase of a home to repay the hardship if the disaster prevented the use of the distribution (e.g., the home was destroyed prior to purchase). The provision applies to participants who received a hardship distribution to purchase or construct a principal residence within the period beginning 180 days before the first day of a qualified disaster incident period and ending 30 days after the last date of the qualified disaster incident period. To avoid taxation, the hardship must be repaid by June 25, 2021.

  • Loan Relief: An individual who lives in a qualified disaster area and who has sustained an economic loss by reason of such qualified disaster will be eligible to borrow up to $100,000 or 100% of their vested account. Those enhanced loan limits are available until June 25, 2021. For new and existing loans, loan repayments may be delayed for up to one year or, if later, June 25, 2021.

Paycheck Protection Program Revival

Authorization for new PPP loans, as initially established by the CARES Act, ended on August 8, 2020. The Act revives the program and provides $245 billion for additional loan guarantees. The Small Business Administration (SBA) is accepting applications for new PPP loans through March 31, 2021. The Act also

  • Provides a second PPP loan (defined as PPP “second-draw” loans) to businesses that meet certain thresholds of significant economic decline. An employer must have less than 300 employees; must have used a first PPP loan; and must have shown at least a 25% decline in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter, among other requirements. Second-draw loans are limited to 250% of average monthly payroll, up to a maximum of $2 million. (Entities that were not in operation as of February 15, 2020, are not eligible for PPP or second-draw loans.)

  • Allows lenders to rely on the certifications of borrowers as to eligibility for, and the amount of, second-draw loans.

  • Expands the types of expenses that can be paid for with a PPP loan to include expenditures on operations, property repair, supplier costs and costs of personal protective equipment (PPE) required for coronavirus protection.

  • Allows PPP borrowers to choose between an eight-week or 24-week covered period after loan origination during which the loan proceeds are to be used.

  • Clarifies that expenses paid using PPP or second-draw loans that are forgiven may also be deducted as business expenses.

Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC), a refundable tax credit created by the CARES Act against certain employment taxes equal to 50% of wages up to $10,000 paid after March 12, 2020, was set to expire at the end of 2020. The Consolidated Appropriations Act

  • Extends the credit through June 30, 2021.

  • Increases the credit rate to 70% of wages up to $10,000 per quarter.

  • Expands eligibility for the credit by reducing the threshold of required economic decline (20% reduction in year-over-year receipts, rather than 50%).

  • Permits employers receiving the ERTC to also apply for PPP loans.

Contact your local Mutual of America representative with any questions.

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