Important Retirement Plan Considerations when Dealing with Economic Hardship
During these unprecedented times, we understand that you are focused on the well-being of your employees and the operation of your business in a new environment. As your business continues to evolve during this time and quick decisions are made, we wanted to remind you that some business decisions may have an indirect impact on the operations of your retirement plan. As Congress looks to pass the Coronavirus Aid, Relief and Economic Security Act —or CARES Act —we are committed to providing you with the possible implications for your business and retirement plans.
COMPANY MATCH: As companies look for ways to preserve cash flow, making a change to your company match may be something you are considering. Depending upon how your match is structured in your plan document, changes to your match may require a plan amendment and may also require mandated notification of at least 30 days to your employees.
–Best practice: Contact your retirement plan provider or Advisor, if applicable, to see what may be required, including any required plan amendments and mandated employee notifications to implement any match changes. Please note that depending upon your match provisions and your retirement provider’s capabilities, implementing a change to your match can take more than 30 days.
LOANS:For employees who have loans, should they have a reduction in hours or become terminated, this may impact the employee’s ability to continue to make loan repayments, thus causing the loan to default.
–Best practice: Review your loan policy to see what repayment options are available post-employment. Familiarize yourself with your retirement plan provider’s late loan and default process.
REDUCTION IN WORKFORCE:In the unfortunate circumstance where you have a reduction in workforce, please be aware that this could result in a partial plan termination which requires immediate vesting for all terminated employees among other implications. The Internal Revenue Service defines a “partial plan termination” as a situation in which more than 20% of the total plan participants are laid off in a particular year.
–Best practice: Familiarize yourself with the IRS FAQ on partial plan terminations. If you think you may have a partial plan termination, contact your retirement plan provider. Your retirement provider can assist you with any mandated vesting changes and reporting requirements.
MARKET VOLATILITY RESOURCES: Our partners at J.P. Morgan Asset Management have created a market volatility hub for Plan Sponsors and their Advisors where you can obtain current information on COVID-19 and its impact to the markets. As this situation continues to evolve, we will continue to keep you apprised of any regulatory changes or relief that may be provided due to these trying times.
*Sources - Helium Advisors; Internal Revenue Service; JP Morgan Asset Management