Senate Republicans are proposing giving workers more flexibility in their ability to take money from retirement accounts as part of stimulus legislation to counter the coronavirus outbreak.
The proposal being advanced by Senate Majority Leader Mitch McConnell (R-Ky.) includes a provision that would permit limited early withdrawals and higher loan amounts from retirement accounts, as well as a temporary waiver on required minimum distributions, in order to allow the stock market to rebound.
More than 20 financial services trade groups, including the Financial Services Institute and the Investment Advisers Association, wrote a letter to all members of Congress supporting the measures to provide flexibility to retirees whose retirement savings may have been hit hard by the steep drop in the stock market.
The relief offers workers “a safety valve” to address immediate needs due to the crisis and is targeted to ensure that workers do not harm their ability to prepare for future retirement income needs, said Wayne Chopus, president and CEO of the Insured Retirement Institute (IRI), a retirement industry trade group that was a co-signor on the letter.
The trades groups are supporting measures that would do the following:
• Waive the additional 10% tax on early withdrawals from retirement plans for individuals who have been impacted by the COVID-19 pandemic. Permit individuals three years to repay the distribution. Permit individuals to include the distribution in income over three years
• Streamline loan procedures and liberalize hardship distribution rules.
• Double the current plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan.
• Allow three years to repay income tax associated with a loan default.
• Allow individuals who borrow from their plan and have a repayment due during the months following the COVID-19 outbreak to delay their loan repayment for up to one year.
The industry groups also expressed support for additional measures, including temporarily waiving minimum required distributions, to provide flexibility to retirees whose retirement savings may have been hit hard by the steep drop in the stock market. Congress enacted a similar temporary waiver on RMDs after the 2008 stock market melee.
“In other times of extraordinary need, Congress has permitted limited early withdrawals or higher loan amounts from retirement accounts. It’s important to strike the right balance between helping those in immediate need with the longer-term retirement crisis where too many Americans lack adequate retirement savings,” said Chopus.