Robertson Ryan Financial Services – Here to Help

April 7, 2020

As we navigate through these uncertain times, please know Robertson Ryan Financial Services remains committed to servicing your retirement plan needs.

With the recent passage of coronavirus-related legislation coupled with economic uncertainty, we wanted to provide some information as it relates to retirement benefits and your obligations as a sponsor of a qualified retirement plan.

You already or will be getting a communication from your 401(k) Recordkeeper (i.e. American Funds, Empower, Transamerica, Vanguard, Voya…) concerning adopting the temporary provisions of the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  It is very important to READ and ACT based on the communication from the 401(k) Recordkeeper – we are available to help with any questions.

Below is a summary of items for consideration based on what we know currently:

LEGISLATIVE ITEMS

Families First Coronavirus Response Act (FFCRA)

  • While not directly related to retirement benefits, FFCRA does impact paid time off benefits for some employees. Paid time off is considered regular wages for retirement benefits. As such, 401(k)/Roth/403(b) deductions and employer contributions would apply to these paid time off payments.

  • Your plan document may currently limit the timing of changes to retirement deferral elections (i.e. 401(k)/Roth/403(b) deduction amounts); however, employees always have the option to stop deferral deductions (i.e. elect 0%) at any time. You may want to provide instructions for changing deferral elections along with any communications related to FFCRA paid time off.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

  • Added three OPTIONAL retirement withdrawal/loan benefits
    1. Coronavirus-Related Withdrawal
      • Available to those diagnosed with COVID-19, those with a spouse or dependent diagnosed with COVID-19, or those experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced work hours due to the virus, unable to work due to lack of child care, closing or reducing hours of the business owned by the individual due to the virus or any other factor determined by the Treasury Secretary
      • May take up to $100,000 of vested balance with no mandatory 20% Federal tax withholding and no 10% Federal early withdrawal penalty
      • Available through December 31, 2020
      • May be repaid or taxed over a three-year period
      • Reliance on employee self-certification is allowed
    2. Loan Limit Increase & Extension
      • Available to those diagnosed with COVID-19, those with a spouse or dependent diagnosed with COVID-19, or those experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced work hours due to the virus, unable to work due to lack of child care, closing or reducing hours of the business owned by the individual due to the virus or any other factor determined by the Treasury Secretary
      • Increase to the participant loan limit to the lesser of $100,000 or 100% of the participant’s vested account balance for loans taken between March 27 and September 24, 2020
      • Allows the suspension of loan repayments due on outstanding loans that are in good order for a period of up to 12 months. This relief expires on December 31, 2020. The suspension period is to be added to the original loan term when repayments, including accrued interest, resume, regardless of the length of the loan’s original term.   
    3. Waiver of Required Minimum Distribution (RMD) Requirements
      • Participants normally subject to RMD requirements for 2020 may waive the withdrawal for this year 
  • Plan Sponsor may implement any combination of these three new options via plan amendment and employee notification
    1. Plan amendment due date is the end of the 2022 plan year
    2. Timeline for actual availability of the new withdrawal and loan options is subject to your record-keeping partner’s ability to implement these options in their system
  • Contact your dedicated Integrity administrator to discuss prior to processing any of these optional provisions for individual employees

 OTHER ECONOMIC IMPACTS

 Suspension of Required “Safe Harbor” or other Fixed Employer Contributions

  • Formally amend the plan to suspend otherwise required employer contribution
  • Provide required notice period to employees (typically 30 days)
  • Pass required non-discrimination testing (may result in contribution refunds to “Highly Compensated Employees”)
  • For a Top Heavy plan, make required Top Heavy minimum contribution (up to 3% of eligible employee wages)

Termination of Employment vs Furlough/Layoff/Suspension

  • Former employees have access to their vested retirement account upon termination of employment while those on temporary layoff must meet an in-service withdrawal option, as outlined in your plan document (Hardship, Age 59 ½, etc.)
    • Temporary layoffs do not typically qualify as a termination of employment
    • “Temporary” is a facts-and-circumstances determination
    • Consider whether employee is still receiving other employer sponsored benefits (no termination)
    • Consider whether employee is eligible for unemployment or COBRA (likely termination)
  • Partial Plan Terminations may occur if there is a large reduction in workforce (generally 20% or more of eligible employees, but varies by industry)
    • Results in full vesting for affected former employees

Please contact:

William J. Cronin, AIF®
Managing Director
bcronin@robertsonryanfs.com
262-364-5216