Has Repayment Period Been Extended for Loans Under CARES Act?

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning retirement plan administration and regulations.

“I understand that, under the CARES Act if a participant is qualified under the stated COVID-19 reasons specified in the Act, he/she can borrow 100% of his/her vested account balance up to $100,000. But has the repayment period been extended for such a large loan? Seems odd that such a large amount would be required to be repaid over five years.”

Stacey Bradford, Charles Filips, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Unfortunately, the Coronavirus Aid, Relief and Economic Security (CARES) Act did not explicitly change the repayment period under the loan regulations, other than to suspend loan repayments that would be required in 2020. Pending IRS guidance, if a borrower meets the definition of a “qualified individual” under the COVID-19 rules, and borrows $100,000, that loan will generally be required to be paid off during a five-year period (the start of which will take into account any suspension period). The only extended repayment period permitted under the existing loan regulations is for the purchase of a primary residence, which will be an unlikely scenario given the current COVID-19 pandemic and related impacts.

Thus, given the large repayments that will be necessary for such a loan, and the fact that accrued interest for 2020 would be re-amortized over the life of the loan if 2020 repayments are suspended, the Experts would not be shocked to see an uptick in loan defaults in 2021 and beyond related to such loan amounts. And, unlike loan defaults in 2020, loan defaults in 2021 and beyond are not currently eligible for COVID-19 tax relief.

Of course, these provisions are subject to change as future guidance is issued.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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