The Covid-19 outbreak has created health, social and economic repercussions impacting nearly every corner of American life, and financial advisors have witnessed first-hand many of the affects on their clients and their businesses.

But help is on the way in the form of legislative and regulatory relief, said Skip Schweiss, TD Ameritrade's managing director for advisor advocacy and industry affairs, in “Congress Sends a CARES Package: What the historic law means for investors,” a Wednesday webcast hosted by TD Ameritrade Institutional that focused first on the recently enacted Coronavirus Aid, Relief, And Economic Security Act (CARES Act).

Required Minimum Distributions
Jeffrey Levine, director of advance planning at Buckingham Wealth Partners, noted that the bipartisan legislation changes many of the rules surrounding retirement accounts, including those regarding required minimum distributions (RMDs).

“Every RMD is suspended with the exception of those from defined benefit plans,” said Levine. “That means first-timers (taking their first RMD) are suspended, too, all those RMDs are suspended this year.”

Levine said that the suspension of the 2020 RMD payment will not change the life expectancy tables used to calculate RMDs in subsequent years. The 5-year period for distributions from IRAs inherited by a non-designated beneficiary like a charity, trust or estate will become a six-year period thanks to the CARES Act, but the 10-year rule for distributions from IRAs inherited by designated beneficiaries remains unchanged – because by design, the rule, which as part of the 2019 SECURE Act replaced the stretch-IRA strategy, won’t impact inherited IRAs until 2021.

But what about those who  have already taken their 2020 RMDs?

“It’s not entirely clear,” said Levine. “There are three different ways you can consider utilizing existing rules to go about fixing that.” One, if it’s within 60 days of taking the RMD, the distribution can be put back into another retirement account as a 60-day rollover. Two, the IRS extended any deadlines that would have occurred within 60 days to April 1 –so advisors could use that rule to put any distribution occurring after Feb. 1 back into the account without having a taxable event.

“The third possibility is that you could  utilize a coronavirus-related distribution to fix this, but it’s a little  bit  more of a gray area so do it with a tax counsel or tax professional,” said Levine. Since retirement account owners have up to three years to repay any coronavirus-related distribution, if an RMD could also be described as a distribution needed because of the impact of the outbreak, “they may have up to three years to put that distribution back.”

But RMDs from inherited retirement accounts cannot be put back, said Levine, though Congress may include a provision for inherited accounts in future relief legislation.

Hardship Distributions
Levine also said that advisors should be careful with the advice they give on coronavirus-related distributions from retirement accounts. While the CARES Act permits account  holders to withdraw up to $100,000 from traditional retirement accounts in 2020, a coronvirus-related distribution has to be related to a health impact or financial hardship caused by the virus – infection, hospitalization, exposure and quarantine, furloughs, lay-offs and other work disruptions.

“The CARES Act also authorizes the Treasury to create new guidance on who may qualify, so we could see a blanket statement from Treasury along the lines of ‘we have determined everybody has  been impacted by this crisis, therefore, we’ll let everybody utilize this,’” said Levine. “That hasn’t happened yet.”

Advisors should be aware of the potential benefits to their clients of the expanded withdrawals permitted by the CARES Act – the 10% penalty for distributions to account holders under age 59 and ½ are being waived for the year, said Levine, offering a one-time opportunity to remove funds efficiently from before-tax accounts. Withholding requirements on distributions are also being waived to allow account owners to spread  the income over three tax years, beginning in 2020.

So if someone took a $99,000 distribution this year that qualified as a coronavirus-related distribution, they could either take all of that income on their 2020 taxes as normal, or spread that income in equal $33,000 increments over the 2020, 2021, and 2022 tax years.

Similarly, distributions can be rolled back into retirement accounts over three years in single or multiple payments, allowing account holders to amend their tax returns and recoup any taxes paid on the income from those distributions, said Levine.

Retirement Plan Loans
The CARES Act also loosens the rules around loans from workplace retirement plans, said Levine lifting the maximum loan amount to $100,000 and eliminating the loan limits tied to the vested balance of the account. Previously, most workplace retirement accounts limited loans on smaller accounts to 50% of the vested balance. Payments on the the loans now through the end of 2020 can be delayed up to one year.

Charitable Deductions
The legislation also made two notable changes to charitable deductions, said Levine, the most important being that the limit on contributions in cash that can count against a giver’s adjusted gross income has been waived for 2020.

“A client can completely wipe out their 2020 tax bill by giving to charity,” said Levine. “The only catch is that it mus go directly to charity. They cannot go to either a 509(a)(3) supporting organization, or, more importantly, they cannot go  to donor-advised funds.”

The act also includes an above-the-line, non-itemized additional $300 charitable deduction for cash contributions, which doesn’t amount to much, said Levine, but “some clients want to pay as little as possible on taxes, and if you didn’t tell them that they could save $3, then they’re going to get  upset. It’s important.”

The Employee Retention Credit
The CARES Act also includes an employee retention credit, which offers employers a 50% credit on wages up to $10,000 per person.

“The catch is, in order to receive this, you’ve got to have a qualifying event: Either your revenue has been significantly reduced, like a quarter with less than 50% of the revenue that you had in the same quarter of 2019, or you’ve been shut down by the government, partially or completely, during that quarter,” said Levine. Firms that meet the qualifications for the credit will continue to receive  it throughout the balance of 2020, or until the quarter after their revenue exceeds 80% of the revenue reported for the same quarter of the previous year. Recipients of Paycheck Protection Program loans are ineligible for the provision.

The CARES Act also allows small businesses to defer their 2020 tax liability – half out to the 2021 tax year, the other half out to the 2022 tax year. However, businesses that have had debt forgiven under the Paycheck Protection Program are ineligible for tax deferrals.

The Paycheck Protection Program
Neil Simon, vice president, government relations for the Investment Advisor Association also addressed the CARES Act, specifically the Payroll Protection Program, the $350 billion small business relief package that was exhausted on Thursday.

“There is likely to be further stimulus enacted by Congress,” said Simon. “If you haven’t gotten your application in, do so.”

The program, according to Simon, provides loans intended to provide incentive for businesses to keep employees on the payroll. The principal, interest and fees can all be forgiven, and the Small Business Administration reimburses origination fees.

Simon noted that the program does require business owners to make a good faith certification that the current economic uncertainty makes their loan request necessary, but the requirement is “essentially a check box.” Furthermore, Finra has made clear that it will not require forgiven PPP loans to be reported on form U-4, though the SEC has not made similar provisions for ADVs.

Simon expects Congress to make passing additional Payroll Protection Program funding a priority when it reconvenes later this spring.

Regulatory Relief
During the outbreak SEC has also announced several different forms of relief for financial firms and has made a number of extensions to regulatory deadlines.

“On March 25 the SEC issues an order expanding the period covered by its first Form ADV and Form PF relief on March 13,” said Simon. “The new order extends the time frame for relief and delivery obligations for which the original due date was on or before June 30.”

“Advisors unable to meet deadlines because of coronavirus and unable to deliver those documents now have 45 days from their original due date,’ said Simon. “Originally, the SEC had a number of conditions you had to meet in order to avail yourself of the 45-day extension, but we and other organizations expressed our concerns to the SEC and the new order no longer includes those conditions – but it does still require that advisors notify the SEC by email and disclose that they intend to rely on the order.”

“There have been no extensions to the Form CRS or Reg BI deadline,” said Simon. “There have been a number of recent FAQs on Form CRS, and we’re busy informing our membership about them.”

The SEC has also made several moves to extend deadlines related to the Investment Company Act, said Simon, including those for board meetings and certain filings.

More importantly for advisors, Simon said that the SEC is also suspending some enforcement surrounding the custody rule.

“This is a situation where advisors are working remotely and they may be unable to check on a daily basis what has been received at their home office in the mail,” said Simon. “The SEC has made clear that it does not consider advisors to have received client assets at their office location until their personnel are able to access the mail at that office location.”

The SEC has also eased –temporarily—some audit and reporting requirements around pooled investment vehicles, said Simon.

SEC staff are also taking a “no-action” position in regards to EDGAR filings requiring manual signatures, he said.

Simon said that the Covid-19 outbreak highlights the need for e-delivery of documents and reports to be the default for advisors moving forward. Currently, advisors are required to get client consent for e-delivery, which may be challenging amid the pandemic if consent has not already been given.

Since firm’s business continuity plans are “being stressed” by the shut downs, the SEC’s OCIE has told the IAA that it will not inquire about firm’s business continuity planning outside of the context of one of its eams.

“In future exams, you should all assume this is something that is going to be looked at more closely than before,” said Simon.