Title
Resolution to Approve Optional Coronavirus-Related Distributions from the City's Deferred Compensation Retirement Plan
Memorandum
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed into law on March 27, 2020, and addresses a range of economic and health-related issues resulting from the COVID-19 pandemic. One of the retirement related provisions of the Act is the creation of special rules regarding coronavirus-related distributions (CRD), which, if adopted by the City, would provide the below-outlined benefits to eligible participants of the 457(b) deferred compensation plan.
The provisions are similar to relief provided in prior years for natural disasters. To be eligible for coronavirus-related distributions, the distribution must be made to an individual who is diagnosed with COVID-19, has a spouse or dependent who is diagnosed with COVID-19, or has experienced adverse financial consequences as a result of the pandemic.
The Act provides for several exclusions from the standard IRS Code 457(b) regulations, including:
* Delayed Federal Income Tax and Penalty Waiver. Unless the individual elects otherwise, a CRD is included in gross income in equal amounts spread across three years. In addition, if the individual would owe the 10% early withdrawal penalty, that penalty is waived for CRDs.
* In-service Distribution. A plan may allow a CRD notwithstanding the restrictions that apply to in-service distributions.
* Eligible Distributions. The distribution must be made on or after Jan. 1, 2020, and before Dec. 31, 2020. The maximum amount for an individual is $100,000.
* Withholding. The mandatory 20% federal tax withholding, and requirement to provide a 402(f) notice is waived for a CRD.
* Repayment. To enable participants to restore their retirement savings, the Act allows the distribution to be repaid during the three-year period beginning on the day after the date the distribution is made, back into the plan.
The Deferred C...
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