Monday, April 13, 2020

Important considerations for retirement plan sponsors during the coronavirus pandemic

We are in unprecedented times and companies are facing a multitude of challenges in many aspects of business. Here at HANYS Benefit Services, we are committed to helping guide our clients through these times. Below are important considerations for retirement plan sponsors during the coronavirus pandemic.
  1. Eye on compliance. Remote work conditions have put distance between many collaborative human resources staff. It’s critical to keep a focus on key administrative tasks such as the timely funding of plan contributions and processing of participant requests. Keeping your retirement plan vendors apprised of any staff reductions and plan changes can help ensure smooth plan administration during this time.
  2. Working with a tighter budget
    • Plan contribution flexibility. If budget constraints exist, consider whether your retirement plan’s contributions are mandatory or discretionary, and, if necessary, whether you are able to amend your plan to provide some relief at this time.
    • Plan expenses. You should be aware of your vendors’ fees and confirm they are reasonable. Certain types of plan expenses can be paid from plan assets. While allocating fees to the plan participants may not seem ideal, it may perhaps help you avoid the suspension of employer contributions. Also, this may be an opportunity to evaluate whether certain tasks can be streamlined or administered at a lower cost (e.g., electronic delivery of certain participant communications).
    • Use of plan forfeitures. Forfeitures happen when employees terminate employment before becoming fully vested in a plan’s employer contributions. The plan’s forfeiture account can typically be used to help pay certain plan expenses or offset funding for employer contributions. Forfeitures typically need to be used each plan year and may be helpful right now if the budget is tight.
  3. Impact of layoffs
    • Layoff versus leave. There are important differences when administering the plan rules relative to terminated employees and those on leave. Notwithstanding in-service withdrawal provisions or circumstances made available under the CARES Act (as referenced further below), employees put on leave don’t incur a distributable event from the plan like terminated employees. Also, employees on leave may be eligible for a temporary suspension of plan loan repayments, whereas terminated employees will typically incur a taxable event on unpaid loan balances when payroll-deducted repayments cease if a one-time full payment isn’t made.
    • Plan leakage. If you have to let people go, be aware that participants in most defined contribution plans will have the ability to take an immediate distribution from their retirement account after termination, regardless of age. This differs from participants in traditional defined benefit pension plans who may need to wait until actual retirement age to receive their benefit. Educating employees on all available options, including a deferral of payments until retirement age, is an important way to help them make a choice that is right for their individual circumstance.
    • Partial plan termination. A partial plan termination can result when layoffs reduce a plan’s participant count by at least 20%. This type of plan event can mandate that you fully vest participants and should be monitored closely.
  4. CARES Act. The recently passed CARES Act provides the option to make the distribution and loan terms in your retirement program more flexible as a result of the coronavirus pandemic. For more information, see our separate summary
  5. Participant education. Volatile market conditions and general uncertainty underscore the need for education services. Take advantage of virtual education services if offered by your vendors.

If you would like to speak with a consultant at HANYS Benefit Services on these or any other topics or learn more about our participant education services, please call (800) 388-1963 or email hbs@hanys.org.

This material is intended for informational purposes only. It should not be construed as legal advice and is not intended to replace the advice of a qualified attorney or tax advisor.

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