More Updates to the CARES Act and Good News for Safe Harbor Plans

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Two recent Internal Revenue Service (IRS) Notices (IRS Notice 2020-50 and IRS Notice 2020-51) further clarified provisions of the CARES Act, specifically, participant loans and Required Minimum Distributions (RMDs).  In addition, the IRS provided further contribution funding flexibility for Safe Harbor plans in Notice 2020-52.

More Updates to the CARES Act and Good News for Safe Harbor Plans

CARES Act Updates and Clarifications

What is a Qualified Individual?

Under the CARES Act, the statutory definition of a “qualified individual” is a participant diagnosed with, or participant whose spouse was diagnosed with, COVID-19 or otherwise experienced adverse financial consequences as a result of the pandemic. In Notice 2020-50, that definition was expanded to include individuals affected by reductions in pay, rescissions of job offers, a delayed start date or an individual whose spouse was affected financially.

Required Minimum Distributions

Initially, required minimum distributions (RMDs) were waived as part of the CARES Act for any RMDs due after March 2020.  Now these are waived (and can be repaid for anyone that took them) for all of 2020. In a late June IRS Notice (2020-51), the IRS stated that if an employee took an RMD in 2020, they may now roll those funds back into a retirement plan. In addition, the 60-day rollover period for any RMDs taken has been extended to August 31.


Few plans implemented the increased loans limits available through the CARES Act, but most plans did implement the one-year extension on loan repayments. The IRS recently weighed in on the loan extensions and provided a safe harbor for employers: an employer will satisfy the requirements of the CARES Act if the loan is suspended between March 27 and December 31. Remember the term of the loan can only be extended by one year. The loan does not default, loan interest accrues, and the loan is re-amortized once payments resume.

Changes for Safe Harbor Plans

At the end of June, the IRS released new Safe Harbor rules. Notice 2020-52 contained key provisions allowing plans to maintain Safe Harbor status but eliminate contributions to the plan’s highly compensated employees (HCE) only. HCEs will need to be provided a notice.

Another provision allows for a mid-year reduction or suspension of Safe Harbor contributions without meeting the typical requirements of operating at an economic loss or having specific wording in the plan’s safe harbor notice.  The amendment must be adopted between March 13 and August 31, and the 30 days’ notice to participants is still required.

Lastly, relief is also provided for Safe Harbor Nonelective contributions.  Nonelective contributions can be reduced or eliminated without the standard 30-day notice so long as the notice is provided by August 31.

What should you do regarding these notices?

  • We always recommend checking with your recordkeeper to verify how they are handling these notices. Are there any system changes or communications you, as the plan sponsor, need to be aware of?
  • Make sure you are aware of and understand the changes, as you may begin to receive questions from employees.
  • Continue to promote your benefits to your employees, including all these recent changes. It is important, especially during times like these, that your employees know you are doing all you can to support them.

Keeping pace with regulatory changes is challenging. If you need assistance understanding these changes and communicating them to your employees, the team of experts at Francis Investment Counsel can help. Reach out to us directly or fill out the form below to get started.