Four Things You Should Do Now as a Retirement Plan Sponsor

What Can You Do to Help Your Employees When They Need it Most?

The economic crisis and recession resulting from the global coronavirus pandemic is hitting everyone. Even if the contraction turns out to be short-lived, few will emerge completely unscathed. If your company is like most, you are watching as your revenue slows and your reserves dwindle. And while you may be worried about your balance sheet, you may be losing even more sleep over the well-being of your employees—your most valuable resource.

Even if your company has had zero layoffs, the number one concern of your employees is job security. But beyond that, they are worrying about their futures and what is happening to their nest eggs. If you are a retirement plan sponsor, there are a few things you can do now to help ease their minds during the Covid-19 crisis.

Communication is key; at this time, you can’t overcommunicate.

Even though your plan participants may have ignored your communications in the past, they aren’t now. Your tone and messages are important—your people need confidant guidance to help them avoid making bad decisions about their plans that could have negative consequences for decades to come.

Within that context, here are four things you can do as a plan sponsor to help ease a difficult situation for your employees and your company.

  1. Explain to your employees in clear and simple terms how they can benefit from the CARES Act legislation. Even if they still have their jobs, and even if they are not furloughed or receiving reduced pay, they may still need emergency cash. Two provisions of the CARES Act allows them to access their retirement funds:
  • No-penalty hardship withdrawal of up to $100,000. Under certain conditions, the Act allows them to withdraw money before they turn 59 ½ without the usual 10% penalty.
  • Increase in borrowing power, from the previous $50,000 to $100,000.
  • 401(k) loan extensions. Participants with outstanding loans that have payments due in the period beginning on the effective date of the CARES Act and ending on December 31, 2020, can have their loan repayments delayed for one year. Subsequent repayments will be adjusted to reflect this repayment moratorium, and the delay will not be considered in determining whether the loan term exceeds five years

( Note that these options are available now, even without the need to immediately adopt authorizing plan amendments. Even plans that do not currently authorize participant loans or in-service distributions will be able to use these tools.)

  1. Ensure your fund line-up includes low risk and risk-free options, such as money markets investing in government, for plan participants seeking full liquidity and “safety.” Be sure to review your plan documents and investment policy statement to be sure they are in alignment with this.
  2. Consider offering access to financial advisors. Many recordkeepers have options for this or can help you identify outside financial advisors at no cost to your company.
  3. Document your decision-making processes. It is not uncommon for decisions about plans and business operations to be made by the same parties, which can be a set up for conflicts, especially during times of stress. This is the time to document your decision processes to avoid problems down the line.
There are many online sources to provide more guidance for employers Here are just a few:

IRS Coronavirus Tax Relief
U.S. Department of Labor Coronavirus Resources
CalPERS COVID-19 Webpage

SHRM (Society for Human Resource Management)

 

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