The Coronavirus Aid, Relief and Economic Security (CARES) Act provides many provisions to help weather the storm of this pandemic, including the loosening of access to retirement plan funds for people who are impacted. This leaves a lot for Retirement Plan Sponsors to sort through and analyze to help those in need. Here are a few things to consider:
The CARES Act includes provisions for the following:
- Coronavirus-related Distributions allow for the waiver of the 10% penalty on early withdrawals for amounts up to $100,000 from a retirement plan or IRA taken between January 1, 2020 and December 31, 2020.
- Plan loan limits are increased for qualified individuals to the lesser of $100,000 or 100% of their vested account balance.
- Plan sponsors have discretion on whether to offer the CRD and plan loans in their qualified plan.
- The Act waives RMD payments for 2020.
- The Act allows defined benefit and money purchase pension plans to delay any contributions due in calendar year 2020 (including all quarterly contributions) until January 1, 2021.
You can read more about these provisions and what they entail in our BerganKDV CARES Act Legislative Summary for Retirement Plan Sponsors.
Recordkeeping
- The logistics of implementing and communicating these provisions to participants will be different based on the recordkeeper you are using. Things like opt-outs, opt-ins, the documentation that must be signed by participants and the way plan amendments must be handled vary by every recordkeeper. Make sure you are up to speed with what your plan requirements are.
Suspension of 401(k) contributions
- For companies where cash flow is tight, it’s very feasible (and potentially likely) that companies may need to suspend their 401(k) contributions. This is an often-overlooked source of cash flow but there are some compliance details to be aware of before you take that action. Work with your retirement plan advisor to make sure you understand all that is involved before making your decision.
Reduction of workforce by more than 20%
- With many companies being forced to lay people off, there are implications for the retirement plan in the form of what’s known as a partial plan termination. If you experience more than a 20% reduction in your workforce, then the employees who are laid off are immediately vested in your plan. This is something to keep on your radar, as it can have downstream impacts for future matching contributions and could also have an impact on cash flow.
Changes to your current compensation structure
- Companies are getting creative with the ways they compensate people during these difficult times, which is great, but it’s important to understand the ramifications for how compensation is accounted for with regard to your retirement plan. Again, this is something companies should have on their radar to avoid running into hot water down the road with compliance and testing.
Our teams at BerganKDV are rallying together and working around the clock to ensure we’re up and running so you can be up and running. Whatever situation you’re faced with, at any time, you can call our task force and we’ll get you the answers, the listening ear and/or the quick support you need: 888-356-2295 or info@bergankdv.com.
The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.
