CARES Act FAQs
Q: What is the CARES Act?
The CARES Act (Coronavirus Aid, Relief and Economic Security Act) is federal legislation designed to stimulate the U.S. economy. The CARES Act makes changes to certain rules regarding NYCERS loans and distributions.
Q: Who qualifies for benefits under the CARES Act?
A “qualified individual” is a member who:
- is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention, or
- has a spouse or dependent diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention, or
- experiences or has experienced adverse financial consequences as a result of (i) being quarantined, furloughed or laid off or having work hours reduced due to COVID-19, (ii) being unable to work due to lack of child care due to COVID-19, (iii) being unable to work due to closing or reducing hours of a business owned or operated by the individual due to COVID-19, (iv) having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or a start date for a job delayed due to COVID-19, (v) spouse or a member of household (anyone who shares principal residence) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19, (vi) closing or reducing hours of a business owned or operated by spouse or a member of household (anyone shares principal residence) due to COVID-19; or (vii) other factors as determined by the Secretary of the Treasury.
Q: How does the CARES Act help if I am having trouble paying an outstanding loan?
If you have an outstanding loan balance that you are paying monthly and are not in default, the CARES Act allows a qualified individual to defer the loan payments due through December 31, 2020 for one year from the date the individual applies for deferment. Interest at 6% continues to accrue on the outstanding loan balance during the deferment period, together with the 0.2% mandatory loan insurance.
The repayment schedule in effect at the time you took out the original loan will remain in effect when the deferment period ends. Payroll deductions will resume in January 2021. Upon expiration of the one-year deferment period, NYCERS will recalculate your loan balance with the interest accrued during the deferment period, plus the monthly 0.2% mandatory loan insurance premium, and recertify payments based on the original repayment schedule.
You may submit Form #401 any time between March 27, 2020 and December 31, 2020 to request deferment of an outstanding loan not in default.
Q: What if my loan is already in default?
The CARES Act does not have any provision for a NYCERS loan already in default.
Q: Can I take out a new loan and defer payment?
Yes. A qualified individual can take out a new loan anytime from the date the law was enacted on March 27, 2020 through December 31, 2020 and defer payment. Interest on the loan will accrue during the deferment period, together with the 0.2% mandatory loan insurance. NYCERS is preparing a form enabling members to apply for a new loan and defer payment under the CARES Act; please check back on the NYCERS’ website for notification when the form becomes available.
Q: How much can I borrow under the CARES Act?
The CARES Act does not change the law that only allows NYCERS members to borrow up to 75% of their Member Contribution Accumulation Fund (MCAF). However, the $50,000 tax-free loan limit has been increased to $100,000 under the CARES Act. This benefit is available only until September 22, 2020. Please contact NYCERS’ Call Center at 347-643-3000 or log in to your MyNYCERS account to determine how much you can borrow.
Q: Does the CARES Act affect loans at retirement?
There is special tax treatment for a member who wishes to take out a loan at retirement and certify as a qualified individual under the CARES Act. The loan at retirement will be considered a coronavirus-related distribution and there will be no penalty tax if you are under age 55. You may also report the loan as income ratably (according to a proportionate rate) over three years instead of in the year when the distribution occurred.
Q: Can I roll over my coronavirus-related distribution?
The CARES Act does not permit rollovers of coronavirus-related distributions. At retirement, you can either choose not to take a CARES Act loan and roll over the distribution, or take a CARES Act distribution and not roll over the money.
Q: Can I take out a coronavirus-related distribution from both NYCERS and Deferred Compensation?
Yes, but the total amount of the tax-free distribution may not exceed $100,000. This is increased from $50,000.
Q: Where can I get tax advice regarding the CARES Act, including how to proportionately distribute my loan as income over three years?
NYCERS is unable to provide tax advice or assistance with tax filing. Please consult with a tax professional.