The Leading Retirement Solutions Team wishes everyone health and safety in the midst of COVID and the financial market downturn. Leading Retirement Solutions was built by entrepreneurs, for entrepreneurs and we know and understand the challenges you are facing. As a member of the American Society of Pension Professionals & Actuaries (ASPPA), we are actively lobbying on your behalf. ASPPA has requested that the IRS provide relief for companies and owners that sponsor retirement plans including SEP/Simple IRA, 401k, 403b, Defined Benefit, Cash Balance, Pension Plan, ESOP, ROBs and others.
Even in the midst of this crisis, our team of industry experts are available to help with your retirement plan related questions. Whether it’s reviewing your plan design, answering questions related to your employees, or making recommendations based on your changing priorities and needs – we are here for you! You can look forward to frequent updates from us on changing government policies that result in relief for company sponsored retirement plans, helpful tips, and resources for navigating your plan during these uncertain times.
Refer to the Our Latest Updates section to find the topic you're looking for in this guide.
3/27/2020:
The CARES Act, signed into law on Friday March 27, 2020, provides aid to companies that sponsor a retirement plan and employees who participate in these plans. The CARES Act enhancements for retirement plans were enacted to assist retirement plan participants by offering a special distribution, expanded loan features and relief from required minimum distributions. These enhancements are important as they are additional benefits that can be made available to participants who are experiencing or will experience financial and other hardships.
The CARES Act offers new and enhanced withdrawal, distribution and loans for your employees. The following information will help you make decisions about adopting the CARES Act enhancements for you and your employees:
The CARES Act allows for a special distribution with special criteria and modified tax treatment (referred to as the “Cares Act Distribution”). The distribution may be taken from any eligible retirement plan including qualified plans, IRA’s, 403(b) Plans and governmental 457 plans.
The CARES Act does not allow for this type of distribution from a Defined Benefit, Cash Balance or Money Purchase Plan.
The CARES Act loan for qualified individuals increases the available loan amount and offers extended loan repayment periods. If your retirement plan currently allows participant loans, a participant can take out a higher loan amount and/or delay repayment of new and existing loans, if they qualify.
For new participant loan requests:
For existing participant loans:
Repayment Suspension (new & existing participant loans):
A CARES Act distribution or loan is available to a qualified individual for the following reasons:
The CARES Act allows a Plan Administrator to rely on a participant’s self-certification that they are a qualified individual. Distributions are also available for beneficiaries of deceased participants.
IRS notice 2020-51 states that the Required Minimum Distributions normally due for payment during 2020, required from many qualified plans, have to be made by August 31,2020. This is intended to prevent affected participants having to liquidate investments at a significantly reduced value and give time for value to recover.
A required minimum distribution (RMD) is the minimum amount a retirement plan participant must withdraw from their account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). Roth IRAs do not require withdrawals until after the death of the owner.
The SECURE Act that became effective on December 20, 2019, substantially changed the RMD requirements. Pursuant to the SECURE Act, if a retirement plan participant reaches the age of 70½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.
The CARES Act has now afforded even greater flexibility for retirement plan participants who may have been required to take an RMD in 2020.
RMD’s are waived for any RMD:
Defined Benefit and Cash Balance plans are being given more time to make contributions that are due for deposit during 2020. Plan sponsors will have additional time to recover reduced revenue from mandatory business shutdowns:
We are here to help you and will continue to perform compliance requirements related to your company sponsored retirement plan.
Companies and entrepreneurs must timely complete regulatory requirements including the upcoming July 31, 2020 IRS Form 5500 filing deadline for all retirement plans with a December 31st plan year end, until such regulatory relief may be granted otherwise, by the Internal Revenue Service, Department of Labor and/or Congress.
Timely communication about retirement plan changes is one of the most important requirements related to your company sponsored retirement plan. If you amend your retirement plan, make changes, or if your service providers present you with notices, make sure you transmit those changes and notices to all eligible employees and all accountholders in your retirement plan. In lieu of mailing paper notices, ask us how you can safely transmit information to your workforce.
It is likely that you have set up your company sponsored retirement plan (especially a 401k or 403b plan) to give participants control of the investments in their accounts. For participants to have control, they must have sufficient information on the specifics of their investment options. Make sure that you (and your retirement plan service providers) are responding to participant inquiries and requests for information in a timely manner. You can also direct them to our recent blog post for more information.
These contributions are discretionary; an employee can stop contributing to their retirement account at any time. Employee elective deferrals, from their own pay, can be ceased (reduced to zero) by an employee at any time, particularly in a 401(k) or 403(b) plan.
Regulations have not changed on the timing of transmitting employee contributions to retirement plan investment accounts. The deposit timing safe harbor from the Department of Labor still applies. Be sure all employee deferrals and loan repayments are transmitted by the usual deadline. The company may have more time to deposit matching and discretionary profit sharing contributions. If more time is needed, check with our team to understand the time available for depositing company contributions.
If your priority is to reduce company expenses, you should consider and discuss with your retirement plan service provider if ceasing your company matching program is an available option (regulations may restrict ceasing your matching contribution program mid-year); and if it would be the best thing to do at this time.
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, however, 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.
Generally, a company profit share contribution is discretionary, and a company can cease making these contributions to a retirement plan at any time.
When making decisions to layoff and/or terminate employees, make sure you understand what will be allowed and/or required of your company. Some states have work-attached employee layoff programs, which allows an employee to avoid looking for alternative work while also receiving unemployment pay. These programs may or may not result in an effective employment termination for retirement plan purposes demanding continuation of plan benefits.
A common question our team is being asked by employers, “Is my employee terminated and can they get money out of their retirement account.” Not all cessation of employment results in a termination of employment for purposes of a participant getting their money out of the retirement plan. Additionally, the CARES (Coronavirus Aid, Relief and Economic Security) Act provides for additional flexibility for employees that are still considered employed and/or furloughed, to get access to their retirement accounts.
When determining if an employee is effectively terminated, rather than using terms like layoff, furlough and even termination, rules are based on whether there has been a severance of employment.
Severance of employment is an analysis of facts and circumstances, that considers factors including:
Severance of employment results in:
If there is no severance of employment:
Retirement plan sponsors will need to decide what CARES Act flexibility they want to adopt for their retirement plan. Sponsors will also need to amend plan documents on or before the last day of the first plan year beginning January 1, 2022, if the choose to utilize the CARES Act flexibility. If more than 20% of eligible employees have had a severance, it may (but not always) trigger a partial plan termination requiring full vesting of all employer contributions. It’s unlikely the IRS would challenge a reasonable determination of employment status especially in light of these significant and extraordinary times.
Generally, hardship withdrawals are not allowed when an employee is no longer considered employed with your company. A terminated employee with a participant loan must repay the loan in full unless your plan documents indicate or are amended otherwise.
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 when an employee either quits, retires, is discharged, or dies. A severance from service also includes a layoff. It may not include work furloughs. Your 401(k) 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.
A hardship withdrawal program, if available via your company sponsored retirement plan, allows an employee (including owner) while still employed with your company to take some or all of their account balance from the retirement plan.
If your company sponsored retirement plan does not allow for hardship withdrawals, your plan may be amendmened to allow for this type of distribution program.
In the event that the government (specifically FEMA) declares a disaster and the employee’s residence or place of employment is in an area designated by FEMA as a disaster zone, then a hardship withdrawal may be allowed for any kind of expense and loss (including loss of income) incurred on account of a disaster. Until then, employers need to continue to administer the retirement plan according to the plan documents.
**As of 3/31/2020 FEMA has declared 23 states, 2 territories, and Washington D.C. as “disaster” zones; monitor disaster declaration updates from FEMA at the site below:
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.
Most company sponsored retirement plans are required, by the IRS, to amend their retirement plan documents during the 2020 calendar year, particularly to allow for the shift of Requirement Minimum Distributions (RMDs) from age 70 to the new required beginning date age of 72. Leading Retirement Solutions will proactively reach out to you when it is time to initiate the amendment process, this year.
There are various methods for reducing costs related to your retirement plan, such as:
To reduce company paid expenses related to your retirement plan:
To reduce the impact of service costs on your participants:
If you want to reduce plan paid costs to reduce the financial burden of the plan for your employees and plan participants, speak with us about reallocating service costs to be company paid.
To reduce costs in other areas of your plan:
There are certain retirement plan related costs that may not be passed on to plan participants. We can help you identify those costs and discuss opportunities for re-allocating costs based on your changing priorities.
If you sponsor a Cash Balance Plan or a Defined Benefit Plan at your company, the investment market downturn could be cause for a significant increase in company contribution requirements to bring the plan up to acceptable funding levels. Other plan costs could increase based on the funding level on the last day of 2020, so early contributions may be a good idea. However, if you feel your business may have difficulty meeting funding requirements for the current year, now is the time to act to reduce or to freeze benefit accrual for the current year. This can reduce some of the burden from high contribution costs. Contact your plan administrator for a review and contribution estimate.
If you're considering terminating or freezing your current company sponsored plan, you will need to do the following:
For further assistance please contact LRS.
If you lay off or terminate employees, understand what additional retirement plan requirements may be triggered:
Your plan may have a partial termination if more than 20% of your total plan participants are laid off in a particular year.
The law requires all “affected employees” to be fully vested in their account balance as of the date of a full or partial plan termination. They must become 100% vested in all employer contributions (including matching contributions) regardless of the plan’s vesting schedule. Employee salary deferrals are always 100% vested.
An affected employee in a partial termination is generally anyone who left employment for any reason during the plan year in which the partial termination occurred and who still has an account balance under the plan.
A retirement plan needs regular care to keep it operating properly. Your plan’s care should include a regular review of your plan’s basic operations, especially if you are marking broad changes within your organization. To complete a Compliance Check of your retirement plan operations, ask an LRS team member for help or use the IRS provided checkup tool.
If you have questions about what you can and should do with your company sponsored retirement plan (e.g. 401k, 403b, Defined Benefit, Pensions, ROBS and other plans) in anticipation of the long term impact of COVID and financial markets, contact our team at service@leadingretirement.com or by following the link below:
