At a special called meeting of the PEBA Board of Directors on April 17, 2020, the Board took action to implement the permissive provisions of the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for PEBA’s defined contribution retirement plans. Updated information regarding the implementation of the CARES Act for the South Carolina Deferred Compensation Program (Deferred Comp) and the State Optional Retirement Program (State ORP) is provided below. In reviewing this information, it is important to keep in mind that not all provisions of the CARES Act related to retirement plans are applicable to the retirement plans administered by PEBA. For example, some provisions relate to plan features that are not currently offered by these plans or relate to different types of retirement plans altogether.
At its April 17, 2020 meeting, the PEBA Board fully adopted the permissive relief authorized by the CARES Act for participants of governmental 401(k) and 457(b) plans for the plans offered through Deferred Comp. To learn more about how the provisions of the CARES Act are being implemented for Deferred Comp, please refer to this CARES Act flyer prepared specifically for Deferred Comp.
If a member has a distributable event under the existing plan terms (i.e., severance of covered employment or attainment of age 59½) and certifies that the distribution meets the CARES Act requirements for a “coronavirus-related distribution,” the distribution may be eligible for the tax relief provided by the CARES Act for such distributions. Please note that the waiver of mandatory withholding does not necessarily mean taxes will not be owed on the distribution. Participants should consult with a tax advisor for more information on tax implications.
To request tax relief for a distribution under the provisions of the CARES Act, members who have a distributable event under existing plan terms should contact their State ORP service provider. The member will be required to certify to their service provider that he meets one or more of the coronavirus-related criteria previously discussed.
State ORP in-service distributions
The CARES Act did not create a new form of in-service distribution for 401(a) defined contribution plans, such as the State ORP. Guidance issued by the IRS has clarified that the new in-service distributions allowed by the CARES Act are only available for certain types of plans (e.g., 401(k), 403(b), 457(b)), and do not override the ordinary distribution rules for 401(a) plans such as the State ORP, which generally prohibit in-service distributions unless someone has reached normal retirement age. See, for example, Question 10 of the IRS Coronavirus-related relief for retirement plans and IRAs questions and answers.
Although the CARES Act did not authorize new forms of in-service distributions from the State ORP, the PEBA Board did resolve at its April 17, 2020, meeting that, if the federal government takes future action that would allow in-service coronavirus-related distributions from 401(a) defined contribution plans before normal retirement age, PEBA would adopt those distributions for the State ORP.