The IRS notes in the FAQs that "[a]n employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans," and that "an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules."

FAQ guidance on plan distributions

The FAQs provide the following additional guidance with respect to coronavirus-related distributions from eligible retirement plans:

Other pension plans. A coronavirus-related distribution is treated as meeting the distribution restrictions for a section 401(k) plan, section 403(b) plan, or governmental section 457(b) plan, but the CARES Act does not otherwise change the limits on when plan distributions are permitted to be made from employer-sponsored retirement plans.

For example, a distribution from a defined benefit plan or money purchase pension plan still requires a permissible distributable event, and any such plan is not permitted to make a distribution in a form other than a qualified joint and survivor annuity without spousal consent merely because the distribution would otherwise be treated as a coronavirus-related distribution.

Self-certification. An administrator of an eligible retirement plan may rely on an individual's certification regarding his or her status as a qualified individual for purposes of a coronavirus-related loan or distribution, unless the administrator has actual knowledge to the contrary.

Allowing repayments. Repayments of coronavirus-related distributions are to be treated as rollover contributions. If an eligible retirement plan does not allow rollover contributions, the plan is not required to change its terms to accept repayments.

FAQ guidance on reporting & taxation of distributions

Several of the FAQs address how coronavirus-related distributions are to be treated for tax and reporting purposes. The guidance provided under these FAQs includes the following:

Designation as coronavirus-related distribution. A qualified individual may designate any eligible distributions of not more than $100,000 in the aggregate as a coronavirus-related distribution, regardless of whether the applicable plan treats the distributions as such.

Individual reporting and income inclusion. A qualified individual who receives a coronavirus-related distribution should report the distribution on his or her 2020 federal income tax return and should include the taxable portion of the distribution in income ratably over the three-year period starting with 2020 (i.e., as income on the 2020, 2021, and 2022 tax returns), unless such individual chooses to include the entire distribution in income in 2020.

Repayment of distribution. An individual who receives a coronavirus-related distribution may repay to an eligible retirement plan (including an IRA) all or part of the amount distributed within the three years following the date of distribution and no federal income tax will be owed on the amount repaid.

The repayment is reportable on Form 8915-E, which form is expected to be available from the IRS before the end of the year.

An individual who repays a coronavirus-related distribution in a subsequent year may file amended tax returns for years in which the distribution was included in income to claim a refund of the tax attributable to the portion of the distribution that is repaid.

Plan reporting. Plans and IRAs that make a coronavirus-related distribution must report the distribution on Form 1099-R, even if the distribution is repaid in the same year. The IRS expects to provide future guidance on how to report these distributions.

FAQ guidance on expected future guidance

The FAQs state that the Treasury Department and IRS expect to release additional guidance on the CARES Act retirement plan distribution and loan provisions in the near future.

Such guidance is expected to apply the principles of IRS Notice 2005-92 ("Notice 2005-92"), which provided guidance with respect to similar retirement plan distribution and loan provisions under the Katrina Emergency Tax Relief Act of 2005.

The following guidance provided under Notice 2005-92 with respect to distributions and loans to victims of the Hurricane Katrina disaster may be included in future guidance with respect to CARES Act retirement plan distribution and loan provisions:

No change permitted to income inclusion method. Notice 2005-92 provided that the decision to recognize taxable income resulting from a qualifying distribution ratably over a three-year period could not be changed after the timely filing of the individual's tax return for the year of distribution.

Application of excess repayment amounts. Notice 2005-92 permitted a qualified individual who had elected to include a distribution in income ratably over three years and whose repayment amount for a taxable year exceeded the amount otherwise includible in gross income to either

• (i) carry forward the excess amount to reduce the amount of the qualifying distribution that is includible in gross income in the next taxable year or
• (ii) carry back the excess amount to reduce income in one or more prior taxable years in which income attributable to the distribution was included.

IRA substantially equal payments. Notice 2005-92 provided that a qualifying distribution from an IRA would not be treated as a change in substantially equal payments for an individual receiving distributions from an IRA pursuant to Internal Revenue Code section 72(t).

Loan safe harbor. Notice 2005-92 provided a safe harbor allowing for loan payments to be suspended during the permitted suspension period and the loan to be extended by the duration of the suspension period without triggering a distribution pursuant to Internal Revenue Code section 72(t) (because the loan extended beyond five years or otherwise), provided that loan repayments were resumed at the end of the suspension period and the loan amount, including interest accruing during the suspension period, was repaid in substantially level installments over the remaining period of the loan.

Considerations for plan sponsors

Plan sponsors that wish to adopt the distribution and/or loan rules under the CARES Act have until the last day of the first plan year beginning on or after January 1, 2022 to adopt retroactive plan amendments.

For a governmental plan, the deadline for amendments is the last day of the first plan year beginning on or after January 1, 2024.

Plan sponsors making changes to their retirement plans should talk to their recordkeeper and advisors as soon as possible about the process for implementing these changes. In addition, plan sponsors should consider taking the following actions:

1. Plan sponsors should communicate timely with plan participants about plan changes, including preparing notices that would, among other things, describe the changes made to the distribution and/or loan provisions, and the potential risks and tax consequences associated with taking a distribution or loan from the plan;
2. Plan sponsors with safe harbor type plans should review any safe harbor or qualified automatic contribution arrangement (QACA) notices to determine if changes are necessary and if a new distribution of notices is required;
3. Plan sponsors making changes to the loan provisions of their plan should review the plan's loan policy and revise for any changes made. In addition, plan sponsors should consider making additional changes to the plan's loan policy to protect participants against the risk of loan defaults following layoffs, such as allowing for continuation of loan repayment after separation of employment;
4. Plan sponsors should also consider their process for participant self-certification regarding coronavirus-related loans and distributions and work with their plan advisors to develop proper forms; and
5. Plan sponsors should coordinate with their recordkeepers to understand the recordkeeper's involvement with the tracking and restarting of loan payments, the process for electing to make CARES Act related changes to their plan (e.g., whether plans are automatically opted-in to all CARES Act changes with the option to opt-out or whether the plan sponsor has to affirmatively elect to make each change) and whether there will be any fees associated with coronavirus-related distributions and, if so, who will pay for them.

Plan sponsors may also wish to take a more holistic review of their employee benefit programs, both retirement and welfare plans, to ensure that provisions regarding furloughs, layoffs, benefits, continuation coverage, and incentives are proper for the current COVID-19 environment and determine whether other plan changes (e.g., allowing mid-year changes of elections for medical plans, health care spending accounts and dependent care spending accounts) are appropriate.

David Olstein is a partner at Stroock & Stroock & Lavan LLP. Austin Lilling is a partner at Stroock & Stroock & Lavan LLP. Brian Friederich is an associate. Abbey Keppler is special counsel.