FAQs Related to COVID-19

  1. What information should we communicate now to our employees?
    • In today’s tumultuous and uncertain economic time, we believe it’s important to provide your employees with reminders and insights about the options and features included in your plan, as well as some general words of wisdom about retirement savings and investments from the industry’s top thought leaders. Please see the attached content for your consideration and please let us know if we can help you draft any communications for your employees. Also, please ask your plan’s financial advisor for input in this memo and to be prepared for individual questions from your employees.
  2. Can our employees make changes to their 401(k) deferral contribution elections?
    • This is an administrative procedure which you may change at any time. If you have a restrictive policy now, you can consider adding more flexibility at this time and communicate it to your employees. For example, you could simply announce to your employees that they may change their deferral election for any payroll, with sufficient advance notice and in writing to you.
  3. Is there any relief from the Department of Labor’s rules on the timing of deposits of employee contributions and loan payments?
    • It’s important to continue depositing all employee contributions and loan payments withheld from payroll as soon as possible after each payroll within the time frame and according to the guidance we’ve provided in the past.
  4. Do we have flexibility with respect to the timing of your Employer contribution deposits?
    • Yes, in most cases. Let’s discuss individually with you.
  5. Can we suspend or reduce your Employer contributions?
    • If your plan IS NOT a “Safe Harbor” 401(k) plan and doesn’t otherwise provide in the plan document for a fixed contribution, then that means your Employer contributions are technically discretionary (even if you think of them as being fixed) and you may decide at any time to suspend or reduce or change them. No plan document amendment is necessary but, of course, it’s important to notify your employees.
    • If your plan IS a “Safe Harbor” 401(k) plan, then you may suspend your Employer contributions but only after an advance 30-day notice to your employees, along with a resolution and plan document amendment. Please note there are other consequences to consider. We can help you if you need to make a change. Be aware that if your plan is top heavy and you suspend your safe harbor contribution mid-year, you can still be subject to the top heavy minimum, which is up to 3% of pay. This can sometimes lead to the same or greater cost than your original safe harbor contribution.
    • If your plan document provides for a fixed contribution (other than a Safe Harbor 401(k) plan), then you need to go through a process before changing it, including a resolution, plan amendment, and written notice to your employees (but likely not an advance 30-day notice). We can help you with these requirements if you need to change your fixed contribution.
    • If your plan is a Cash Balance pension plan or another type of defined benefit plan, you have some flexibility with respect to your ongoing funding requirements; however, it’s important for us to discuss further with you and our actuaries if you wish to make a change.
  6. Should we be reviewing your plan design for changes or added flexibility?
    • Yes. For example, you may wish to consider changing your plan’s Employer contribution method or adding provisions for loans, hardship withdrawals, or in-service withdrawals if your plan doesn’t currently include them. However, please see the possible relief measures included in a current U.S. Senate bill which might influence your decisions.
  7. When can current employees take withdrawals or loans?
    • It depends on your specific plan document, which can be amended to add or change these options, if you wish. Again, though, please see the proposed U.S. Senate bill provisions below which may come into effect soon.
  8. Can we pay plan expenses from plan assets rather than by your company
    • Generally, yes. But, let’s discuss in more detail if you’re interested. If you have a balance in your plan’s forfeiture account, you can generally use those funds to pay plan expenses.
  9. What is the impact of furloughs and layoffs?
    • It depends on your specific facts and circumstances. If a furlough does not sever or end an employee’s employment with you, then the employee is not eligible for a distribution payment from the plan, unless the employee meets another condition under the plan; e.g. attainment of a certain age, the existence of a hardship, or with respect to certain types of accounts. This may be true even if a furloughed employee is eligible for unemployment or COBRA benefits. In the case of a layoff in which employment is severed, those employees will be eligible for a distribution payment from your plan. In addition, depending on the number of employees affected by the layoff, it could trigger 100% vesting on all balances for those employees. The distinction between a furloughed and a terminated employee will also impact whether their deferrals and your Employer contributions should continue, and whether loan payments may be suspended without triggering a default.
  10. Should we refocus and enhance your fiduciary review of the plan investments?
    • Yes. It’s particularly important at this time to take a closer look review of the plan investments to ensure you’re monitoring them adequately in light of the current market conditions.
  11. Is now a good time for anyone to do a Roth conversion in our plan?
    • Possibly. With an In-Plan Roth Rollover conversion, an individual may convert any amount of a taxable retirement plan account into an after-tax Roth account. This conversion creates a current taxable event for the individual with income taxes paid by the individual outside the plan. The Roth conversion amonunt stays in the plan and neither the conversion amount nor the related future growth in earnings will be taxable. Considering the current decline in market prices, it may be an attractive time for an individual to convert, thus paying less income tax currently due to lower market levels. Your plan must allow for this type of transaction. Let’s discuss further if you think any of your employees might be interested in this option.
  12. What is the difference between freezing a plan vs. a plan termination?
    • A plan freeze more easily allows for contributes to resume and it allows for investments to continue indefinitely. With a plan termination, it completely disbands the plan and requires all assets to be distributed within 12 months. It can be expensive and lower employee morale.

 

Do you have more questions related to your plan and COVID-19? Please submit your questions to us to admin@bco.cc. We’re happy to help offer additional guidance and resources.

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