COVID-19 and Your Retirement Plan
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How are fiduciary liabilities and responsibilities impacted by COVID-19?
Even if they are virtual, it’s still important to hold meetings to ensure your plan is operating in compliance with plan provisions, laws and regulations. Investment options should continue to be monitored with your investment advisors. Your plan still needs to be administered in accordance with plan provisions, laws and regulations (e.g. timely contributions, loans, distributions).
What are plan sponsors’ options for employer contributions?
Amending the plan for suspension or removal of employer contributions is an option for plan sponsors and depends on the contribution type (e.g. discretionary, safe harbor). Appropriate notice must be provided to participants. Contributions are still due the following year (as late as September or October) to be deductible on the current year tax return.
Is there relief for funding of employee contributions?
No. The Department of Labor rules still apply. Employee contributions, including any loan repayments, must be remitted to the plan trust as soon as administratively feasible – no later than the 15th business day of the following month. Penalties may result, and corrections, including lost earnings, should be considered for violations.
What are the key impacts of the CARES Act to our plan?
- Distributions. The Act waives the 10% penalty on COVID-19-related withdrawals up to $100,000, and these funds are taxed over a three-year period. Participants may re-contribute these funds without regard to annual IRS limits. All required minimum distributions have been waived for 2020 (regardless of COVID-19 eligibility).
- Loans. The Act allows for a temporary increase in the loan maximum amount; participants may borrow up to the lesser of $100,000 or 100% (up from $50,000 or 50%) of their vested account balances. The increase is optional for plan sponsors, not required. In addition, loan repayments due March 27, 2020 through December 31, 2020 can be delayed for up to one year.
- COVID-19-related distributions and loans are permitted at the plan sponsor's discretion even in plans that do not allow for loans or in-service distributions.
How do layoffs and furloughs impact our plan?
A significant layoff can result in a partial plan termination (facts and circumstances-based determination; generally, at least 20% of your workforce), which requires immediate vesting of all participants.
A furlough differs from a layoff; this is not a termination event and thus will potentially impact a participant’s eligibility in certain plan offerings or vesting provisions but does not result in immediate eligibility to take a distribution.
Has there been an extension to the Form 5500 deadline?
While there is a chance there may be a special extension granted, no extension has been established or announced at this time. Plan sponsors still have the option to file the normal extension–from July 31 to October 15 for calendar year plans.
What types of expenses can be run through our plan to help with cash flow constraints?
Eligible expenses can be paid out of plan assets. These include (but not limited to):
- Form 5500 preparation
- nondiscrimination testing
- mandatory plan amendments
- investment advisory
- audit service fees
If you have questions about how the CARES Act applies to your retirement plan, please connect with your PKF Texas Employee Benefit Plan Audit and Consulting team:
Visit www.PKFTexas.com/COVID-19 for the latest updates.