WASHINGTON — The U.S. Senate late Wednesday passed the massive $2.2 trillion COVID-19 aid bill that is expected to allow companies to put off pension contributions and workers to access retirement savings penalty-free.
The bill, which President Donald Trump said he’d sign, still must pass the House. The legislation would extend $1,200 to most American adults and $500 for most children, create a $500 billion lending program for businesses, cities and states, and a $367 billion employee retention fund for small businesses. It would direct $130 billion to hospitals and provide four months of unemployment insurance, among other things.
One of the key provisions expected to be in the bill is allowing companies to delay required pension plan contributions until the end of 2020, said Lynn Dudley, senior vice president at the American Benefits Council, which represents employers on benefit matters.
“That gives companies flexibility,” though they’ll have to pay interest, she said. “It puts cash in companies’ hands now.”
The centerpiece of the bill remains direct payments to households of up to $1,200 for individuals and $2,400 for joint filers, with an extra $500 per child.
Those amounts phase out by 5 percent of adjusted gross income above $75,000 for single filers and $150,000 for married couples. So a family of four earning $200,000 would see a credit of $900 instead of the maximum $3,400.
Two drafting errors in the 2017 tax bill would be fixed to help retailers, who were suffering from stiff competition from Amazon.com, and are now seeing far less foot traffic as a result of people staying home.
One mistake in the 2017 law prevents retailers and restaurants from depreciating building improvements in a single year. Instead, these establishments must depreciate improvements over an embarrassingly long 39 years.
That would be corrected in the stimulus package, at least according to recent drafts circulating.
The bill includes an employee retention tax credit on wages up to $10,000 per employee per quarter kept on an employer’s payroll through the end of 2020.
Companies eligible for the tax credit must have fully or partially suspended operations due to a government order and suffered a significant decline in revenues.
As an additional incentive to keep workers on staff, the measure would allow companies to defer the 6.2 percent Social Security tax on all wages up to $137,700 for the rest of the year, though they’d have to pay it back in equal installments in 2021 and 2022. What they owe, though, would be reduced by the tax credits earned by keeping employees on their payroll.
“This is about helping our workers keep their jobs,” Senate Finance Chairman Chuck Grassley, R-Iowa, said in a statement. “Our economic relief package has provisions to help businesses so they have the cash to keep the doors open and keep making payroll.”
As it has with other disasters, Congress will allow no-penalty hardship withdrawals from 401(k)s and other retirement plans as Americans struggle to find cash to make it through the coronavirus pandemic.
The draft of the legislation contains relaxed rules for taking out loans against retirement savings, for deducting charitable contributions and for taking required minimum distributions from retirement plans.
The hardship section not only waives the 10 percent early withdrawal penalty from a retirement plan, but gives those who make withdrawals three years to return the money.
Another provision would loosen rules and raise limits for those who wish to take out loans against their retirement savings. In the case of a loan, the individual remains invested in the market and would enjoy any potential bull market that could occur following the crisis.
But those who make hardship withdrawals would miss out on investment gains if the markets rise.
The draft also contains a provision to waive required minimum distributions from the plans for a year. In a letter to Senate leadership last week, the benefits council argued that these distributions had been suspended after the 2008 financial crisis and there’s a bigger need for this flexibility now.
An example given was for a retiree of a certain age who is required to take out 5 percent of the plan’s balance each year. If the required distribution is based on the balance as of Dec. 31, 2019, that balance may have shrunk precipitously since then. A $100,000 balance may well have shrunk to $80,000, but the retiree would still be required to take out $5,000.
The Washington Post contributed to this report.