Many people today believe that U.S. executives are paid too much while others believe that the size of their compensation packages are justified. For this assignment, choose a peer-reviewed article to

Harkening back to the precedent set in the 2008 financial crisis and to the provisions of the Troubled Assets Relief Program (TARP), one provision of the CAR ES Act establishes certain limits on the amount of executive compensation that can be paid by businesses that receive loans, loan guarantees, or other financial assistance under Title IV of the CAR ES Act. 3 That title provides roughly $500 billion to the Treasury Depart - ment’s Exchange Stabilization Fund. 4 Howe ver, Tit le IV does not provide for the popular Paycheck Protec - tion Program which is found in Title I. Accordingly, the limits on executive compensation in Title IV do not apply to businesses that only avail themselves of the re - lief provided through the Title I program.

To be eligible to receive a loan or a loan guar - antee under Title IV, an eligible business must agree that it will comply with the following two restrictions on executive compensation for a period (“limitation period”) beginning on the date the loan or guarantee agreement is entered into, and ending one year after the loan or guarantee is no longer outstanding. 5 First, no officer or employee of the business who received aggregate base salary, bonuses, awards of stock, and other financial benefits (“total compensation”) that exceeded $425,000 in calendar-year 2019 may receive total compensation exceeding such calendar-year 2019 compensation over any consecutive 12 months of the limitation period, or severance benefits exceeding more than two times such calendar-year 2019 compensation.

Second, to the extent any officer or employee of the business had total compensation that exceeded $3 mil - lion in calendar-year 2019, then during any consecutive 12 months of the limitation period, such employee or officer may not receive total compensation that exceeds the sum of $3 million, plus 50 percent of the excess over $3 million of the total compensation received by the officer or employee in calendar-year 2019. 6 Any companies receiving assistance under Title IV of the CAR ES Act (the “debtor company”) should promptly identify which of its employees, if any, are subject to the above-referenced compensation limits and then determine the aggregate 2019 compensation for each such employee to serve as the baseline total compensation. However, there are a number of open questions that debtor companies will need to be aware of when applying the limits on executive compensa - tion provided for under Title IV of the CAR ES Act.

First, the CAR ES Act is silent as to whether the value of noncash benefits like stock awards should be assessed for purposes of the limits on total compen - sation at the time of grant or at the time of vesting, which, without additional guidance, may compli - cate that application of those limits. In addition, the application of the limits is unclear with respect to employees who commenced employment following 2019 and for employees who received compensation for only a portion of 2019.

Furthermore, going forward, debtor companies will need to implement procedures to track—and limit—compensation paid to covered employees.

That process could be tricky in light of the need to apply the limit on a rolling 12-month basis during the limitation period.

In addition, the definition of total compensation is less than clear. In particular, the term “other finan - cial benefits” requires clarification. The Department of Treasury and eligible businesses could look to the TARP regulations in order to provide some guidance in this regard. Those regulations incorporated the defi - nition of total compensation used for SEC reporting purposes. Even though this is a fair interpretation, many of the debtor companies are not SEC-reporting companies and are, therefore, not familiar with the ins and outs of that definition. Those nonreporting com - panies will have to undertake a steep learning curve.

Some of the other interpretative issues that may arise in implementing the CAR ES Act’s limitations on executive compensation include the following: (i) the treatment of preexisting compensation arrange - ments; for example, can stock awards granted prior to the enactment of the CAR ES Act, but that vest or are exercised after the enactment of the CAR ES Act, EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 23 a multiple, of an executive’s base salary. If a debtor company does not need to also reduce an executive’s bonus opportunity, it should be careful to provide in any applicable resolutions and through any amend - ments to the executive’s existing compensation ar - rangements that the bonus calculations will continue to be based on the executive’s prereduction salary.

Since the Title IV limits are measured by when compensation is received, there may be opportunities to mitigate the effect of those limits through planning.

One planning approach would be to provide that the reduction in base salary will be in exchange for the op - portunity to receive a later guaranteed or conditional make-up payment. This approach can be accomplished by a performance-based bonus where the standard for paying the bonus is fairly easy to attain. Another ap - proach is to provide for deferred compensation that will be payable once the Title IV limits have expired.

In either event, the debtor company must be careful that the approach to making up the lost salary does not become an impermissible deferral of com - pensation under Code Section 409A. If an employee’s consent is required to implement a salary reduction and if, as consideration for obtaining such consent, a debtor company agrees to pay additional compensa - tion at a future time, this form of arrangement could result in a violation of Code Section 409A. In that event, the executive may be required to pay an ad - ditional 20 percent income tax on the amount of in - come reported in connection with the arrangement.

Accordingly, the company should consult with tax counsel before proposing any make-up payment that could be paid in a calendar year after the calendar year in which the salary is reduced.

Finally, when implementing a salary reduction, an amendment to an employment agreement, an agreement to provide for a make-up payment, or any other related corporate or noncorporate entity actions, each debtor company should confirm that such ac - tions have been approved by the appropriate body or committee, as determined for corporate or noncorpo - rate entity governance purposes. In many cases, such be grandfathered for purposes of determining total compensation? TARP expressly carved out such pre - existing arrangements from its compensation limits; (ii) if a person was hired in 2019, should such em - ployee’s compensation be annualized to determine if the compensation limits apply? (iii) will the compen - sation limits be applied to restrict the total compen - sation from all related employers? The TARP rules applied the controlled group rules of Sections 414(b) and (c) of the Internal Revenue Code (Code); and (iv) will all executives hired after January 1, 2020, be excluded from the compensation limits?

Implementation and Planning for the CARES Act Limitations Debtor companies must be mindful of whether any of their executives are receiving total compensa - tion that exceeds the dollar limitations set forth in Title IV (the “Title IV limits”). This means that each debtor company must review the compensation pack - ages of its highest paid executives to determine if their total compensation exceeds the Title IV limits. Such review will determine if an executive is a party to an agreement that sets a base salary. If that is the case, then the debtor company must determine if the agree - ment provides that the base salary cannot be reduced so that the agreement would have to be amended in order to implement any reduction. Furthermore, it must be determined if the agreement has a “good rea - son” termination provision that would be triggered by a reduction in salary if the executive does not consent to such reduction. These are all matters that would have to be negotiated with the affected executive.

Because other components of an executive’s com - pensation package can be a function of base salary, reductions in base salary may have unintended or an - cillary consequences. Accordingly, a debtor company should review the executive’s compensation arrange - ments and give careful consideration to the effects of a base salary reduction on various other compo - nents of the executive’s compensation. For example, a performance bonus is often tied to a percentage, or EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 24 (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job de - layed due to COVID-19; (2) the individual’s spouse or a member of the individual’s household (i.e., someone who shares the individual’s 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 child care 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; or (3) closing or reducing hours of a business owned or oper - ated by the individual’s spouse or a member of the in - dividual’s household due to COV ID-19. Among other things, this expanded definition of qualified individu - al recognizes that a reduction in wages did not quali - fy an individual for relief under the provisions of the CAR ES Act and that an individual who has their wag - es (but not hours) reduced can suffer the same adverse financial consequences as will an individual whose hours are reduced. It also brings spouses and house - hold members into certain parts of the definition.

Ordinarily, if an executive wants to withdraw money from a 401(k) plan account prior to attaining age 59½, the plan prohibits such distribution unless the executive has terminated employment, the plan has terminated, or the executive has experienced a documented hardship. In the absence of one of these three qualifying events, a pre-aged 59½ distribution would be subject to a 10 percent penalty. However, under section 2202(a)(6) of the CAR ES Act, a dis - tribution designated as a CRD by a 401(k) plan is treated as meeting the distribution restrictions for qualified cash or deferred arrangements. Thus, for ex - ample, an employer may expand the distribution op - tions under its plan to allow an amount attributable to an elective, qualified nonelective, qualified matching, or safe harbor contribution under a qualified cash or deferred arrangement to be distributed as a CRD even though it is distributed before an otherwise permitted distributable event, such as severance from employ - ment, disability, or attainment of age 59½. 9 decisions that relate to compensation for senior man - agement personnel have to be approved by the board of directors or some other governing body, depending on the nature of the entity that is taking the action. 7 Retirement Plan Distributions The negative economic impact of the pandemic has caused many employees, including those in the executive ranks, to find themselves in serious financial difficulty. These executives may have seen their salary or bonus opportunities reduced, they may have lost money in the stock market due to the decline precip - itated by the pandemic, or their usual cash flows may have been impaired. Consequently, these executives may be looking for a source of funds from which they can withdraw all or some of the amounts required to get by financially. Fortunately, the CAR ES Act has a provision which is intended to enable employees to more easily receive distributions from their 401(k) plan accounts due to pandemic-related situations. 8 (These distributions will hereinafter be referred to as coronavirus-related distributions or CRDs.) CRDs are distributions of no more than $100,000 which are made available from January 1, 2020, through December 31, 2020, to executives who satisfy one of the following requirements: (i) the executive is diagnosed with COVID-19 (by a test ap - proved by the CDC); (ii) the executive’s spouse or dependent was so diagnosed; or (iii) the executive ex - periences adverse financial consequences as a result of (a) being quarantined, furloughed or laid off, or having reduced work hours due to COVID-19, (b) being unable to work due to lack of child care due to COVID-19, (c) closing or reducing hours of a business owned or operated by the executive due to COVID-19, or (d) other factors determined by the secretary of the Treasury.

Exercising the secretary’s discretion provided for in (d) above, Notice 2020-50 also expands the defini - tion of “qualified individual” to include any individual who experiences adverse financial consequences as a result of: (1) the individual having a reduction in pay EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 25 sesses sufficiently accurate information to determine the truthfulness of a certification. Notice 2020-50 pro - vides a model certification, which simply requires the executive to certify that he or she satisfies “at least one” of the listed criteria for being a qualified individual.

Reflecting on the foregoing requirements, it can be concluded that a CRD has three very important ad - vantages for the recipient. First, a CRD is not subject to the 10 percent early withdrawal penalty. If the full $100,000 amount is withdrawn, there is a $10,000 sav - ings. Second, the recipient is allowed to repay a CRD to the 401(k) plan during a 3-year repayment period.

The recipient may repay the CRD to any eligible re - tirement plan or IR A in which the recipient is a par - ticipant or owner and to which a rollover contribution of such distribution can be made. Despite the income tax consequences discussed below, each CRD that is re - paid within the 3-year repayment period will be treated as having satisfied the general 60-day rollover require - ment. In other words, the CRD will be treated as being tax free during the period prior to its repayment.

The third advantage of taking a CRD is that it will be included in the recipient’s taxable income ratably over a 3-year period, unless the individual elects oth - erwise. Moreover, for distribution purposes, CRDs will not be treated as eligible rollover distributions; thus, the mandatory 20 percent withholding, the distribution of a section 402(f ) notice and the direct rollover rules will not apply (even though the CRDs are still eligible for rollover, as described above). Therefore, if the CRD can be repaid by the end of the 3-year repayment period, it is equivalent to obtaining an interest-free loan for that period. In the current interest rate environment, that may not be seen as much of a benefit. Nevertheless, it is a source of funds for an executive who meets the re - quirements for receiving a CRD, even if the CRD is not needed or used to satisfy financial obligations aris - ing from COVID-19. Moreover, even if the CRD can - not be repaid and it is included in taxable income, the tax cost can be spread over 3 years if that provides a tax benefit to the recipient as compared to including the entire CRD in income for the year of the distribution. In general, a qualified individual is permitted to designate a distribution as a CRD if the distribution would meet the requirements of a CRD without re - gard to whether the plan treats the distribution as a CRD. Thus, periodic payments and distributions that would have been required minimum distribu - tions (R MDs), but for Section 2203 of the CAR ES Act, received by a qualified individual from a 401(k) plan account in 2020 are permitted to be treated as a CRD and, therefore, are permitted to be included in income ratably over 3 years. Similarly, any distribu - tion received by a qualified individual as a beneficiary can also be treated as a CRD.

In addition, the definition of a CRD does not limit these distributions to amounts withdrawn solely to meet a need arising from COVID-19. Thus, for example, for an individual who is a qualified individ - ual as a consequence of experiencing adverse finan - cial consequences, the receipt of a CRD is permitted without regard to the qualified individual’s need for funds, and the amount of the distribution is not required to correspond to the extent of the adverse financial consequences experienced by the quali - fied individual. Furthermore, a CRD that is eligible for tax-free rollover treatment under Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) is permitted to be recontributed to an eligible retire - ment plan, and that recontribution will be treated as having been made in a trustee-to-trustee transfer to that eligible retirement plan.

Finally, the plan administrator of a 401(k) plan may rely on an executive’s certification that he or she satisfies the conditions to be a qualified individual in determining whether a distribution is a CRD, unless the plan administrator has actual knowledge to the contrary. The requirement that a plan administrator not have “actual knowledge” that is contrary to an ex - ecutive’s certification does not mean that the plan ad - ministrator has an obligation to inquire into whether an executive has satisfied the conditions to be a quali - fied individual. Instead, this requirement is limited to situations in which the plan administrator already pos - EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 26 CRD can still be obtained by a qualifying execu - tive even if a plan sponsor elects not to amend its plan to incorporate the CRD provisions. In that event, it should not be necessary for the qualifying executive to file a CRD certification with the plan administrator as long as that executive is able to es - tablish that he or she satisfies the requirements for obtaining a CRD. The executive should anticipate that the plan administrator will file a Form 1099- R with respect to the distribution, indicating that it is an early distribution with no exception, but this filing will be contradicted by the Form 8915-E filed by the executive. (See item 10, below.) Finally, if the plan sponsor does not adopt the CRD pro - visions, but the plan nevertheless accepts rollovers, then the plan will have no choice but to accept the rollover back into the plan of amounts received by the executive that he or she treated as a CRD. 3. The CDR need not be taken in a single sum. The recipient can elect to take multiple pay - ments based on prior or expected future “adverse financial consequences.” However, if multiple payments are received, each CRD must be taken by December 31, 2020, and each CRD will have a different 3-year period for the payback. In that event, attention needs to be paid to the various due dates for the paybacks. 4. One of the reasons that allows a 401(k) plan to make a CRD is if an individual experiences “ad - verse financial consequences” as a result of being quarantined, furloughed or laid off, or having re - duced work hours or wages due to COVID-19.

There is no statutory definition of adverse finan - cial consequences which could be troublesome.

However, as noted above, the CAR ES Act allows recipients to self-certify to the existence of such adverse financial consequences. This takes a bur - den away from the plan administrator and enables the recipient to subjectively determine whether adverse financial consequences have occurred.

The ultimate question then becomes whether the recipient’s determination was made in good faith. The payback provisions of the CRD are the most valuable of the three advantages referenced above.

They provide 3 full years to pay back the CRD and provide the recipients with substantial flexibility to change their minds as to whether any portion of the CRD will become taxable. Given that flexibility, here are a number of things that recipients of CRDs should bear in mind:

1. Since the maximum period for repaying the CRD ends on the 3-year anniversary (in 2023) of the date of distribution, the recipient should be care - ful to mark that date on a calendar so that if the recipient wants to consider repaying the CRD, the repayment can be made before the deadline. 2. The plan sponsor should confirm in writing that it intends to amend the 401(k) plan to provide for CRDs before a qualifying executive accepts such distribution. Ideally, the qualifying execu - tive should receive a description of the terms of the amendment. However, similar to the guid - ance provided for the Hurricane Katrina disaster distributions, Notice 2020-50 makes clear that a plan sponsor is free to determine whether or not to offer CRDs from its plan. 10 However, in making this determination, the plan sponsor must apply the determination across the board.

It cannot pick and choose who will be entitled to CRD treatment under the plan. Notice 2020-50 also makes it clear that the plan sponsor cannot prevent a qualifying execu - tive from claiming CRD tax treatment on eligible distributions the executive otherwise takes before December 31, 2020, even where the plan sponsor has chosen not to adopt the CRD relief. Thus, most noncorrective participant distributions will be exempt from the 10 percent penalty tax, will be eligible to be taxed ratably over 3 years, and will be eligible to be rolled over. Even hardship distribu - tions or R MDs which typically are ineligible for a rollover, will still be eligible to be rolled over, if they otherwise qualify as a CRD. In other words, Notice 2020-50 confirms that the tax benefits of a EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 27 quirements arising from the receipt and recon - tribution of a CRD and also provides helpful examples of the proper tax reporting. The payor plan must report the payment of a CRD to a qual - ified executive on Form 1099-R. This reporting is required even if the qualified executive recon - tributes the CRD to the same payor plan in the same year. As noted above, the recipient of the CRD may report the amount of the CRD in his or her income for the year of distribution or may spread the income ratably over 3 years, as he or she elects. This election must be the same for all of the CRDs received during 2020. The election is made by the manner in which the income is reported on the qualified individual’s 2020 income tax re - turn. Once this election is made, it is irrevocable.

However, this election does not affect whether or not the CRD will be recontributed. The timing and amount of the recontribution will also impact the consequences of the reporting election made in 2020 and may require the filing of amended tax returns. 13 A Form 8915-E must also be complet - ed and filed for each year that all or a portion of the CRD is included in income. That form is also used to report any recontribution made during the taxable year. (The Form 8915-E is not currently available, but the IRS anticipates having it avail - able by the end of 2020.) 11. If a client qualifies to receive a CRD, a financial service professional should give serious consider - ation to having the client take such a distribution even if the adverse financial consequences are not severe or even if the client has had COVID-19, but does not need the money. The financial ser - vice professional needs to determine if there is an arbitrage benefit to be obtained from taking $100,000 out of the 401(k) plan and investing it in an asset whereby the investment return (after taxes) is likely to exceed the expected investment return from the available plan investments. De - pending on the client’s individual circumstances, there also may be other financial or economic 5. There appear to be few definite rules as to how the payback of a CRD can be accomplished. The recipient can decide not to repay the CRD even after making an initial election not to include the CRD in income. Conversely, the recipient can elect to repay the entire CRD even after includ - ing portions of the CRD in income for the 2020, 2021, and 2022 tax years. In both cases, amend - ed income tax returns will have to be filed to rec - oncile those tax returns with the actual facts. 6. The repayment of the CRD can be made in mul - tiple payments or in a single sum on the last day of the 3-year repayment period. However, the CRD’s financial benefits are maximized if the latter payment method is utilized. 7. The payback need not be made to the plan from which it was distributed. The payback can be made to other eligible plans apart from the dis - tributing plan. These include an IR A, a new em - ployer’s plan, or a conversion into a Roth IR A. 11 8. If the payback is to be made to the distributing plan, it is not entirely clear that such plan is obli - gated to accept the payment. The issue here is that the recipient typically does not control the plan that makes the CRD and that plan, unless other - wise amended, may not have a provision that pro - vides for the acceptance of rollover contributions.

So, the point is that the recipient should make sure that there will not be any question about the distributing plan accepting a repayment of the CRD. However, even if the distributing plan does not have a provision for accepting rollovers, the recipient can always establish a rollover IR A to receive a repayment of the CRD. 9. If the qualifying individual has a basis in his or her plan account, attention must be paid to how that basis is allocated to a CRD. Fortunately, this issue has been addressed in connection with the Hurricane Katrina relief provisions. Reference can be made to the current Form 8915 which will be updated to reflect CRDs. 12 10. Notice 2020-50 describes the tax reporting re - EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 28 identify officers and executives who are or may be affected by Title IV’s compensation-related restric - tions, and to examine existing plans, agreements, and arrangements so as to determine what changes may be needed. Where necessary, the company will need to obtain the consent of the affected executive and may have to prepare an agreement reflecting the appropriate consents and changes. Financial service professionals can play an important role in helping their business clients to evaluate the direct and indi - rect impacts of salary reductions and in helping their eligible individual clients to evaluate whether there is an economic or other benefit to be derived from taking a $100,000 in-service withdrawal. n Paul J. Schneider, JD, LLM, is senior counsel to Paisner~ Lit vin, LLP, Bala Cynw yd, Pennsylvania, where he has ad - vised clients on taxation and employee benefit mat ters for more than 30 years. He is a char ter fellow of the American College of Employee Benefits Counsel and has ser ved as chairman of the Important Developments Subcommittee of the American Bar Association Tax Section’s Employee Benefits Commit tee. Mr. Schneider is also a member of the board of editors of the Journal of Taxation. Mr. Schneider is a graduate of Lehigh Universit y, Co - lumbia Universit y School of Law (JD), New York Universit y (LLM in Taxation), and LaSalle Universit y (MBA). Mr. Schnei - der frequently writes ar ticles and lectures on tax and em - ployee benefits-related topics, and is the former coeditor of ERISA: A Comprehensive Guide, 4th Edition (Aspen, 2011). He may be reached at pschneider@paisnerlit vin.com.

(1) Due to space limitations, this column will not address any is - sues associated with either equity compensation or nonqualified deferred compensation.

(2) 2020-28 IRB 35 ( July 6, 2020). See also “Guidance for Coro - navirus-Related Distributions and Loans from Retirement Plans Under the CAR ES Act,” accessed at: https://w w w.irs.gov/pub/ i r s- d rop/n-20 -50.pd f.

(3) The conditions in TAR P, which was established under the Emergency Economic Stabilization Act of 2008, included a num - ber of compensation-related restrictions on participating financial institutions, and limited the ability of participating financial insti - tutions to deduct certain types of compensation. For the most part, these restrictions remained in effect until the financial institution satisfied its financial obligation to the United States government.

(4) The roughly $500 billion of loans and loan guarantees break benefits to be derived from having an additional $100,000 for a 3-year period. It is something for a financial service professional to evaluate. Conclusion As a result of the ongoing fluctuations in the fi - nancial markets, the pessimistic outlook for the econ - omy as a whole, the uncertainty about job security, increased medical and other expenses, and decreased cash flows, many companies as well as their execu - tives may experience a need for increased liquidity in the next year or so. The CAR ES Act attempts to address the financial needs and economic uncertain - ties of both those companies and their executives. It makes billions of dollars of financial aid available to companies that have suffered economic losses as a consequence of COVID-19. In addition, the CAR ES Act provides mechanisms by which employees who have been adversely affected by COVID-19 can ob - tain cash-flow benefits from the money held in their retirement accounts.

At the same time, the CAR ES Act introduces additional complexity in the form of limitations on compensation and severance payments payable from debtor companies that avail themselves of the finan - cial relief made available by the CAR ES Act. This is consistent with the jaundiced eye with which Con - gress has viewed executive compensation ever since the Enron/WorldCom-motivated tax provisions of the American Jobs Creation Act of 2004 added Sec - tion 409A to the code. A similar complexity is also added to the provisions of the code that enable eligi - ble executives to obtain a $100,000 in-service with - drawal from their retirement accounts.

Finally, since the financial aid provisions of the CAR ES Act will be available as long as the money has not run out and the in-service withdrawal pro - vision will not be available after the end of 2020, companies or individuals who are seeking to take ad - vantage of these provisions must act promptly. 14 In particular, if a company determines to participate in Title IV’s loan provisions, it will need to promptly EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 29 that, by definition, include standard IR As, annuity plans under Code Sections 403(a) and (b) and Section 457(b) plans as well as other qualified retirement plans that satisf y the requirements of Code Section 401(a). The provisions of the CAR ES Act that pro - vide for expanded loan provisions from 401(k) plan accounts expire in September 2020, and thus are not timely for discussion in this column. Finally, the CAR ES Act provisions allowing for expand - ed loan provisions and expanded distribution opportunities mirror comparable provisions that Congress enacted as part of the Katrina Emergency Tax Relief Act of 2005. As the title indicates, that legis - lation provided relief for victims of Hurricane Katrina.

(9) The CAR ES Act does not change the rules for when plan distri - butions are permitted to be made from employer retirement plans.

Thus, for example, a qualified plan that is a pension plan (such as a money-purchase pension plan) is not permitted to make a distribution before an otherwise permitted distributable event merely because the distribution, if made, would qualif y as a CR D. Further, a pension plan is not permitted to make a distribution under a distribution form that is not a qualified joint and survivor annuity without spousal consent merely because the distribution, if made, could be treated as a CR D.

(10) Plans need to be amended to reflect the new CDR rules under the CAR ES Act by the last day of the plan year beginning on or after January 1, 2022 (i.e., for calendar-year plans, by December 31, 2022). Accordingly, plans may make CR D distributions even if there is no plan provision currently in place to allow such distribu - tions as long as the plan is amended to include that provision before the end of the retroactive amendment period.

(11) The conversion to a Roth IR A is not precluded by the CAR ES Act. However, if this approach catches on, it may open up an avenue for abuse since it allows for the tax consequences of such conversion to be spread over 3 years. So, it won’t be surprising if the IRS puts out guidance regarding this issue.

(12) At this time, it is unclear if additional guidance will be issued to help clarif y the interpretive issues highlighted in this column.

Absent additional guidance, companies receiving aid should, by taking into account the prior experience under TAR P and the Ka - trina Emergency Tax Relief Act and by looking at provisions appli - cable to public companies, make their best judgments around how to resolve the open issues that may affect their executives.

(13) If a qualified individual elects to include all of a CR D received in 2020 in gross income for that year and recontributes any portion of the CR D to an eligible retirement plan at any time during the 3-year recontribution period, then the amount of the recontribution will reduce the amount of the CR D included in gross income in 2020.

The qualified individual will need to file an amended 2020 federal income tax return to reduce the portion of the CR D included in gross income. The qualified individual will also need to file a revised Form 8915-E for 2020 to report the amount of the recontribution as well as the reduction in his or her gross income. On the other hand, if a qual - ified individual includes a CR D in gross income ratably over a 3-year period and the individual recontributes any portion of the CR D to an eligible retirement plan at any date before the timely filing of the down into the following facilities: The Midsized Business Lending Facility leverages the Fed’s emergency discount window, usually only open to large commercial lenders, to make loans to midsized businesses, defined as those that employ between 500 and 10,000 workers. The Main Street Lending Facility supports small and mid - sized businesses by providing capital to help them maintain short- term financing (payroll expenses, for example) and stay in business.

This facility is designed to complement other measures in the over - all aid package aimed at delivering capital to small and midsized businesses. The Government Executives Facility provides liquidity to financial institutions that lend to states and municipalities. Fi - nally, $46 billion is allocated to support specific industries that have been particularly hard hit, such as airlines, air cargo carriers, and industries critical to national security. Title IV of the CAR ES Act is also called the Coronavirus Economic Stabilization Act of 2020.

(5) If an eligible business employs between 500 and 10,000 employees and receives a direct loan, it must also certif y that (i) the funds it re - ceives will be used to retain at least 90 percent of its workforce, at full compensation and benefits, until September 30, 2020; (ii) it intends to restore not less than 90 percent of its workforce as of February 1, 2020, and to restore all compensation and benefits to the workers no later than 4 months after the termination date of the public health emergen - cy; (iii) it will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan; and (iv) it will remain neutral in any union organizing effort for the term of the loan.

(6) The compensation limits under the CAR ES Act and the TAR P program are not comparable. TAR P was an attempt to fix a problem perceived to have been caused by the financial institutions seeking financial relief, and more specifically, by the executives and oth - er highly compensated employees whose risk-taking Congress be - lieved contributed to the financial crisis. As a result, TAR P limited its reach to senior executives and to a handful of other highly com - pensated employees. In addition, TAR P was intended to address in - centive and retention compensation rather than base salary or other elements of compensation. The CAR ES Act, conversely, is part of a relief package for a pandemic that no particular industry had a di - rect hand in causing. Thus, with the CAR ES Act, the focus is more on the concept that if a company comes under substantial financial stress as a result of the pandemic and, consequently, needs to take advantage of government loans, the company should not be using those relief funds for increased or otherwise high levels of compen - sation to highly compensated officers and employees. Instead, the company should only use its relief funds to preserve the economic viability of its business and the jobs of its employees.

(7) Since a substantial percentage of the companies that will receive fi - nancial aid pursuant to Title IV of the CAR ES Act will be nonpublic companies, the planning and implementation concepts discussed in this column are addressed to such nonpublic companies. The considerations applicable to public companies are beyond the scope of this column.

(8) For ease of reference, this column generally refers to distribu - tions from a 401(k) plan account, but unless otherwise specified, these distributions can be made from other eligible retirement plans EXECUTIVE COMPENSATION JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | SEPTEMBER 2020 30 (14) At the writing of this column, there is still money available under Title IV’s various financial facilities. However, those facilities will only remain open to the extent that there is money available to achieve their purposes. So, it may be possible that when this column goes to press in August, the available facilities are closed to further loans or loan guarantees. individual’s federal income tax return for a tax year in the 3-year pe - riod, the amount of the recontribution will reduce the ratable portion of the CR D that is includible in gross income for that tax year. If the amount of the recontribution exceeds the ratable portion of the CR D to be included in gross income for that tax year, the excess can be carried forward or backward, as the taxpayer elects.

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