its plan with respect to qualified individuals, and, if it does, there will not be a
deemed distribution to those individuals under § 72(p) due to the delay. For
example, each repayment that becomes due during the period from March 27,
2020, through December 31, 2020, may be delayed for up to 1 year and then
reamortized (taking into account interest) over a period that is up to 1 year longer
than the original term of the loan. Each reamortized repayment may then be
added to other reamortized repayments and to non-reamortized repayments to
construct an overall loan reamortization schedule.
This notice provides a safe harbor for satisfying section 2202(b)(2) of the
CARES Act. Under this safe harbor, a qualified employer plan will be treated as
satisfying the requirements of § 72(p) pursuant to section 2202(b)(2) of the
CARES Act if a qualified individual’s obligation to repay a plan loan is suspended
under the plan for any period beginning not earlier than March 27, 2020, and
ending not later than December 31, 2020 (suspension period). The loan
repayments must resume after the end of the suspension period, and the term of
the loan may be extended by up to 1 year from the date the loan was originally
due to be repaid. If a qualified employer plan suspends loan repayments during
the suspension period, the suspension will not cause the loan to be deemed
distributed even if, due solely to the suspension, the term of the loan is extended
beyond 5 years. Interest accruing during the suspension period must be added
to the remaining principal of the loan. A plan satisfies these rules if the loan is
reamortized and repaid in substantially level installments over the remaining
period of the loan (that is, 5 years from the date of the loan, assuming that the
loan is not a principal residence loan, plus up to 1 year from the date the loan
was originally due to be repaid). If an employer, under its plan, chooses to
permit a suspension period that is less than the maximum suspension period
described above, the employer is permitted to extend the suspension period
subsequently, but not beyond December 31, 2020.
Example applying the safe harbor. On April 1, 2020, a participant with a
nonforfeitable account balance of $40,000 borrowed $20,000 to be repaid in level
monthly installments of $368.33 each over 5 years, with the repayments to be
made by payroll withholding. The participant makes payments for 3 months
through June 30, 2020. The participant is a qualified individual (as described in
section 1.B of this notice). The participant’s employer takes action to suspend
payroll withholding repayments, for the period from July 1, 2020, through
December 31, 2020, for loans to qualified individuals that are outstanding on or
after March 27, 2020. Because the participant is a qualified individual, no further
repayments are made on the participant’s loan until January 1, 2021 (when the
balance is $19,477). At that time, repayments on the loan resume, with the
amount of each monthly installment reamortized to be $343.27 in order for the
loan to be repaid by March 31, 2026 (which is the date the loan originally would
have been fully repaid, plus 1 year).