During the weekend, Governor Gavin Newsom signed a bill that would align a part of state tax law to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, removing all penalties from loans off of employer-sponsored retirement plans.
Assembly Bill 276, authored by Assemblywoman Laura Friedman (D-Glendale), changes current state standards to the federal CARES Act standards created after the COVID-19 pandemic and subsequent economic downturn. Under the bill and federal law, loans of employer plans normally heavily penalized will receive delayed repayments of up to $100,000 or the greater of $10,000 of a vested account balance, whichever is less. As long as loans were made under those amounts, penalties are removed.
Assemblywoman Friedman, who had changed AB 276 earlier this year from a firearm storage materials bill to make a COVID-19 centered law, had changed the bill to not penalize families and individuals in need of early access to retirement funds to make it through financial hardships during the pandemic.
“During this pandemic, many Californians who are facing unemployment and other hardships are borrowing from their retirement accounts so they can stay afloat,” said Assemblywoman Laura Friedman on Tuesday. “This money can be a lifeline for struggling families and every dollar counts. I’m glad that Governor Newsom agrees that they shouldn’t be burdened with penalties under California law.”
AB 276 had been backed by many unions, primarily by the California International Alliance of Theatrical Stage Employees Council and the Entertainment Union Coalition (EUC).
“We would like to thank Assemblywoman Friedman for her tireless work to gain the passage of AB 276,” said the EUC in a statement. “One of the hallmark benefits of our industry’s strong labor agreements are healthy employer-sponsored defined contribution plans that our members can access to withdraw loans from their personal accounts to pay for mortgages, rent and groceries. AB 276 now ensures that they – and working men and women in similar circumstances throughout the state – will not be hit with a tax penalty for taking out those loans.”
Both Republicans and Democrats in both houses supported the bill, as it passed unanimously in both houses at the end of August.
“Stimulus was delayed and wasn’t enough,” accountant and tax advisor Jay Metzger explained to the Globe. “And the EDD hasn’t been totally reliable on payments. It’s never a great plan to get into a 401K or other retirement plans early, but if you need the funds and there’s no where else, you can now access it much easier.”
“Chalk this one up as another thing we never expected to see that we’re seeing this year.”
AB 276 took effect immediately as a tax levy after Newsom signed the bill.
The firearm storage materials bill is expected to be revived next session.
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