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401(k) Plan Guidance & COVID 19: What Plan Sponsors Need to Know Right Now

March 31, 2020

The Leading Retirement Solutions Team wishes everyone health and safety in the midst of COVID-19 and the financial market downturn. Knowing that this can be a stressful time for Retirement Plan Sponsors and Entrepreneurs, our team of industry experts are working to provide information and guidance regarding retirement plan related questions that retirement plan sponsors are asking us. In addition to bringing context to some of those questions, this article will address recent changes made by the federal government regarding upcoming tax deadlines.

What if my employees can’t contribute to their plan?

Employee contributions are discretionary; an employee can stop contributing to their retirement account at any time. Employee elective deferrals can be ceased (reduced to zero) by an employee, from their own pay at any time, particularly in a 401k or 403b plan.

What if my company cannot make matching contributions? 

If your company wants to cease making contributions (e.g. matching, safe harbor match, non-elective contribution) to the retirement plan, this can generally be done. Although, depending on the type of company contribution program in your plan, a 30-day advance notice requirement may apply. You can also change when you make company matching contributions; consider changing contributions made each pay period to the end of this year.

What about profit share contributions? 

Generally, a company profit share contribution is discretionary and a company can cease making these contributions to a retirement plan at any time.

If I need to let employees go, will it impact my current retirement plan setup?

A reduction in workforce may trigger partial plan termination requirements. These requirements include immediate and 100% vesting of any company made contributions. Contact your Third-Party Administrator to understand what those requirements are. Let your 401k service providers know when this happens so we can help and guide you through the partial plan termination requirements.

When can my employees take distributions or withdrawals from their account? 

Generally, an employee must be on the receiving end of a “severance from service” to withdraw money from their retirement account. A severance from service occurs either when an employee quits, retires, is discharged, or dies. A severance from service also includes a layoff. It may not include work furloughs. Your 401k service providers can help you determine if your employees are eligible for a distribution from their retirement plan account.

Employers should understand if an employee is rehired within 12 months of their severance of service, the IRS no longer considers the original departure as a severance of service. Additional requirements like return of distributed amounts to the retirement plan and more may be triggered. Click here for an in-depth explanation provided by the IRS.

I’ve heard certain tax deadlines have been extended, is the Form 5500 filing deadline one of them?

The IRS has not extended the Form 5500 filing deadline although we are hoping they will soon. On March 20th, the federal government announced that the April 15th tax deadline is now postponed until July 15th for individuals and corporations.  However, 401k, 403b, Defined Benefit and other retirement plans with a December plan year end are still subject to a July 31 filing deadline. This can be extended to October 15th, 2020 if IRS Form 5558 is filed.

If you have questions about your company sponsored retirement plan (e.g. 401k, 403b, Defined Benefit, Pensions, ROBS and other plans), what you can and should do with your company sponsored retirement plan in anticipation of the long term impacts of COVID-19 and the financial markets, contact our team at Leading Retirement Solutions.

For Retirement Plan Sponsors and Entrepreneurs seeking additional information, be sure to check out our COVID-19 Frequently Asked Questions Guide.

If your employees have questions about how Covid-19 and recent Stock Market fluctuations will impact their company sponsored retirement plan, have them check out our recent blog post.

For more tips and information regarding retirement plans, contact us.

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About The Author

Keyvan Khaki is a student at the University of Washington School of Business. He is a Brand Content and Marketing Intern at Leading Retirement Solutions. For more information on Keyvan and the work he is pursuing, be sure to check out his LinkedIn. 

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