NAGDCA members with 401(a) money purchase plans (MPPs) have asked if they may adopt the coronavirus-related distributions that are permitted for 457(b), 403(b), and 401(k) plans under the recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136). The answer is not straightforward.
Under Internal Revenue Code Section 401(a), MPPs are treated as pension plans, and in-service distributions are not allowed before the plan’s retirement age or the minimum age for in-service distributions under the terms of the plan. The CARES Act did not waive this restriction on MPPs for in-service withdrawals. So, while distributions from MPPs that are otherwise allowed (e.g., distributions after termination of employment) can be treated as coronavirus-related distributions by participants, plans cannot make special in-service distributions available for those who are not entitled to take in-service distributions under the terms of the plan.
However, if a governmental 401(a) plan sponsor wishes to explore allowing emergency distributions, the first question to ask is whether the plan is indeed an MPP, or whether the plan simply has a set employer contribution and has not “declared” itself (such as in the plan document) to be an MPP. If the plan has a set contribution and has not officially declared itself to be an MPP, the plan sponsor may conclude that they can take advantage of the new coronavirus-related distribution provisions.
Second, while we do expect the CARES Act loan relief would be available for 401(a) MPPs, governmental MPPs may not have a loan provision in their plan, since loan features are often available instead in a companion 457(b) or 403(b) plan.
The CARES Act provisions offering relief from required minimum distributions (RMD) would apply to 401(a) MPPs. 401(a) defined benefit plans may not take advantage of the RMD relief.
Finally, and most importantly, if a governmental 401(a) defined contribution plan sponsor wishes to explore offering coronavirus-related distributions or loans pursuant to the CARES Act, they should consult with their benefits counsel before giving up!
Many thanks to the NAGDCA Legislative Committee for developing this response.