Temporary Relief Provisions for the 401(k) Plan

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law March 27, 2020, introduces temporary relief provisions related to retirement plans.

MIT has elected to adopt the new provisions for the MIT 401(k) Retirement Plan, which will allow participants more freedom to access funds during the current economic crisis, without tax penalties.

To be eligible for CARES Act relief as described below, you must satisfy one of the following requirements:

  1. You have been diagnosed with COVID-19 or the virus SARS-CoV-2 by a CDC-approved test;
  2. Your spouse or other tax dependent (as defined by IRS Code Section 152) has been diagnosed with COVID-19 or the virus SARS-CoV 2 by a CDC-approved test; or
  3. You are experiencing adverse financial consequences as a result of:
    1. Being quarantined, furloughed, laid off, or having working hours reduced due to the novel coronavirus pandemic;
    2. Being unable to work due to lack of child care caused by the novel coronavirus pandemic; or
    3. Closing or reducing hours of business owned or operated by you due to the novel coronavirus pandemic.

If you have satisfied at least one of the requirements above, you are considered an eligible participant for purposes of the relief described below.

Coronavirus-Related Distributions

If you are an eligible participant, you may withdraw up to $100,000 or your total vested account balance, if less. This change, which is available immediately, means participants who are currently employed by MIT may take a distribution, through December 30, 2020, regardless of age or appointment status. Distributions will not be subject to the 10% early withdrawal federal penalty that applies to distributions taken before age 59½. Otherwise, the distributions will be included in the participant’s taxable gross income ratable over a three (3) year tax period beginning with the 2020 tax year.

Participants who receive a withdrawal may repay some or all of their withdrawal within three (3) years of receiving their distribution. Such repayments will be considered a rollover contribution to the plan. This presumably means that participants can refile their tax returns to reduce their reported income by the repayment amount; however, the CARES Act leaves this detail to IRS regulations.

Participants will need to self-certify their eligibility by phone or on the Fidelity NetBenefits website; MIT will not determine participant eligibility. The IRS may also require participants to self-certify their eligibility on their 2020 Federal Income Tax Return. If you are married, your spouse must consent in writing to your withdrawal.

Loan Flexibility

Eligible participants with an existing loan may have their loan payments paused through December 31, 2020 and payments may be delayed for up to one year. If you choose to take this action, please note the amount of your required loan repayment upon reinstatement of your loan may be higher due to additional accrued interest during the period that your repayments were suspended.

In addition to relief for existing loan repayments, if you request a 401(k) loan at any time during the 180-day period following enactment of the CARES Act (i.e., by September 22, 2020), the maximum amount of the loan has been increased to the lesser of 100% of your vested account balance or $100,000. Participants may not have more than one loan at any time, and are not eligible for loans if they have previously defaulted on a loan from their 401(k) account.

Required Minimum Distributions

If you are receiving required minimum distributions from the 401(k) Plan, you are not required to take your required minimum distribution for the 2020 Plan Year. Unless you specifically request a distribution, you will not receive a required minimum distribution in 2020.

Next Steps

If you decide to take advantage of any CARES Act relief provision, please consult with your tax advisor on how the changes may impact you and your long-term planning for retirement.

To request a 401(k) Plan withdrawal or to pause your current loan repayment, please contact Fidelity Customer Service at 1-877-648-7283 or via Fidelity NetBenefits.

 Fidelity NetBenefits

If you are a campus employee and have additional benefits questions, please contact benefits@mit.edu or 617-253-6151. If you are an employee at Lincoln Laboratory, please contact benefits@ll.mit.edu or 781-981-7055.