How the CARES Act Affects You

The Coronavirus (COVID-19) has impacted everyone’s lives – including how we work, live, and play. We wish everyone the best during this challenging time. In response to the Coronavirus pandemic, the U.S. Government has adopted a stimulus package to help businesses and individuals.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed on March 27, 2020, provides special provisions regarding distributions and loans from certain retirement plans to deal with unexpected expenses and losses due to the coronavirus. These special provisions are described below. Please note that not every plan is eligible to take advantage of these provisions, nor is every eligible plan required to adopt all of the provisions described. Newport will administer the plan following the plan’s adopted provisions from the CARES Act as soon as administratively feasible, but not earlier than April 6, 2020.

Eligibility

The CARES Act generally applies to individuals affected by the coronavirus. It defines this group as:

  • An individual who is, or whose spouse or dependents are, diagnosed with the coronavirus or with coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention
  • An individual who is financially harmed by the coronavirus or coronavirus disease as a result of (i) being laid off, furloughed, receiving reduced work hours, or quarantined; (ii) being unable to work because of a lack of child care; (iii) having to close or reduce the operating hours of a business owned or operated by the individual; or (iv) such other reasons as determined by the Secretary of the Treasury.
Things to consider before taking a coronavirus-related distribution or loan
  • Retirement plan participants are encouraged to look outside their retirement plan first to help manage short-term cash flow needs, as both loans and withdrawals have long-term negative impacts on retirement savings.
  • Due to recent market volatility, your account may be significantly lower than it was at the end of 2019. Withdrawing assets now “locks in” the losses and does not allow your account time to recover.
  • Though “coronavirus-related distributions” are exempt from the early-withdrawal penalty of 10% for participants younger than age 59½, they are still subject to income tax. The income tax on coronavirus-related distributions may be paid over a three year period.
  • Loans can be repaid into your account over time. However, plan loans must generally be paid in full if you separate from service with your current employer for any reason. If you do not repay the loan, the outstanding balance will be recategorized as a plan distribution, and you will owe taxes and possibly an early withdrawal penalty.
  • It is important to remember that most retirement plan assets are protected in the unfortunate event of bankruptcy. However, once retirement assets are withdrawn from the plan, that protection is lost.
We recognize these are challenging times for many and we encourage you to contact your financial advisor before making any decision impacting your retirement savings. See benefits.gov for more information on Coronavirus-related benefits and resources.

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Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services.
Investment Advisory and fiduciary consulting services are offered through Newport Group Consulting, LLC, a registered investment adviser and wholly owned subsidiary of Newport Group, Inc.
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Newport Trust Company, is a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc. Newport Trust Company provides independent fiduciary and trustee services for employee benefit plans.