by Mickie Murphy, Blue Benefits Consulting
While Congress irons out the details of the draft CARES Act, which includes some COVID-19 relief for retirement plans, we have answers to questions employers are asking about their plans right now.
Changes to Plan Contributions
Can employees stop their deferral contributions?
- Employees may stop contributing to their 401(k) or 403(b) at any time, even if a plan only permits changes quarterly or twice a year. Just complete the usual election form (either paper or online) indicating the new deferral amount is 0%.
- Remember, this will not affect participant loan payments.
Can the Employer stop matching contributions?
- In general, matching contributions may be stopped. Depending upon the type (Safe Harbor or discretionary) and how the plan is written, this may require an amendment to the plan and/or a 30-day notice to the employees.
- It is also possible to change the timing of matching contributions so that instead of matching each payroll, you may make the match contribution as late as the tax filing deadline for the 2020 plan year.
Can Safe Harbor contributions be stopped?
- In general, yes with an amendment to the plan and 30 days’ notice to the employees.
- Contributions must continue until the end of the notice period and regular testing would apply for the full year.
Are profit-sharing contributions required?
- Generally, profit-sharing contributions are discretionary and no decision would need to be made until the end of the business year.
- Some plans do have a required contribution and would need to be amended very early in the year to avoid a contribution requirement.
Is there any relief for pension contributions?
- Pension contributions are mandatory, however, you may have some flexibility in timing of contributions or the dollar amount. Congress is discussing a pension contribution holiday, but that is yet to be determined and is not part of the CARES Act. More to come!
Distributions & Loans
Who is eligible for a distribution?
- Generally, terminated employees will be eligible to take a distribution from their plan, which includes layoffs.
- Furloughs may not be considered termination of employment eligible for distribution.
- Termination of 20% of the workforce in a 12 month period may trigger partial plan termination.
- Rehiring employees within 12 months may affect partial plan termination.
What about in-service or hardship withdrawals?
- Plans with standard hardship provisions will most likely be able to take COVID-19 into consideration, particularly for states having received a FEMA Major Disaster Declaration.
- Additional relief for hardships has been requested and is on the negotiating table for the CARES Act.
If at all possible, leaving funds in the retirement plan is highly recommended, particularly in a down market.
Will participants need to continue loan payments?
- Participants with a regular paycheck will continue to make loan payments.
- Loans typically do not go into default immediately after missing a payment.
- Relief has been requested in this regard as part of the CARES Act. This response will be updated when new information is available.
Filing Deadlines 2019 Calendar Year
7/15/2020 – Corporation and individual returns and tax payments due
7/31/2020 – Form 5500 with extension 10/15/2020 (no relief yet)
Check your Summary Plan Description for the provisions already built into your plan. Questions regarding what you can do with your plan, should do, or might change, should be directed to your retirement plan consultant at Blue Benefits Consulting. We are here to help you find the best solution available to you and your employees.
Blue Benefits Consulting, a Blue & Co. entity, is positioned to help companies meet their retirement plan objectives. Learn more about them today.