CARES Act Retirement Plan Discussion

This newsletter is being delivered earlier than scheduled, but significant elements of the CARES Act that directly impacts retirement plans need to be shared.  When this massive stimulus passed on March 27th, most Sponsors were pleased to hear there were provisions that would allow impacted participants to access retirement plan money.  With very little time to digest, we are finding more and more Sponsors wanting to pause and think through these OPTIONAL provisions and determine a more thoughtful discussion than simply promoting “good news the 401(k) is now open.”

First, I want to remind everyone that this is not normal.  Of course, none of this is normal.  This disease, our lives, daily routines, the markets, our communities… none of it.  However, in this case, I am referring to a law passing and being enacted prior to getting any guidance. Many “what if” scenarios clients have asked me are thoughtful questions where we usually get some guidance on legal interpretation and enforcement from the governing bodies.  Due to the rush to make resources available, that is not the case here.  Secondly, while there are countless Americans struggling through this and in need of some help, I do believe the conversations I had last week with Plan Sponsors showed a more complex level of discussion.  Fiduciaries are concerned – rightfully – about participants taking out really large distributions (up to $100,000) at a time where the markets are low. As we look into the future when retirement income needs become reality, these actions today may create a personal financial crisis when time has run out.

Here are three key points on the CARES Act concerning retirement plan transactional elements:

1)      Remember these are fiduciary decisions that you will either have to proactively opt into or opt out of depending on the recordkeeper.  Still, at the end of the day it is a fiduciary decision to allow, not allow or allow with limitations.

2)      Make it personal.  This about your people, your company, and your communities.  What is the level of impact and what may or may not be appropriate given your thoughtful understanding of impact to your Plan participants?  For some plans, wide offering of the new provisions makes sense, but not true for every plan. RSG is being negatively impacted, but we have not laid anyone off and we have not cut our employees compensation.  So, should we have people locking in losses and pulling $100,000 out as distributions or loans from their future financial wellness at this time?  We have chosen to pause these new provisions.  Each organization has a different reality…

3)      This is when you need a Plan Consultant who adds value.  Since Monday March 30th began, the next business day after the CARES Act passed, we were taking calls at RSG from clients and participants to help guide this process at a Sponsor, participant, and vendor level.  If you need additional support for your questions and/or contingency planning, feel free to use us as a resource during this challenging time regardless of our business relationship.

The CARES Act is a massive piece of legislation and many of its elements, such as SBA loans, are more of a focus for small business owners.  With that in mind we wanted to share our executive summary, so you had an easy to use guide that hopefully helps make this process a little easier…

For some organizations who want to think this process through a bit more, but are too busy to have a personalized analysis/discussion with consultants like the RSG team, this recording was prepared with that in mind.  If you would like to listen to me recap a client review and pose some of the business decisions regarding the CARES Act retirement plan elements, please click here for this 20-ish minute training video

I believe that intentions here were good and the American Retirement Association (ARA) and National Association of Pension Administrators (NAPA), two groups we are part of and support, were advocating for some level of retirement monies access as a piece of the solution.  However, sometimes good intentions can create challenges down the road.  My brother has a house in Cape Cod.  I always remember hearing how they had efforts in the 90’s to save the seals.  That sounds good and noble, who doesn’t like seals?  But now, the Cape is filled with Great White sharks.  That is just my silly example of how positive actions create future challenges.  Help during a crisis is good, but after the burst, after the 9/11 attacks, after the financial crisis and great recession, the retirement vault was not opened and therefore those participant accounts rebounded. In December ’19 (source: Fidelity Investments) the average participant balance broke an all-time high.   What will the long-term implications be from increased distributions and loans as a result of Covid-19 relief on those accounts and what precedent are we setting on access in a future crisis?… Click here for additional information.

Did You Know? 

It is historic and heartbreaking to see that the Disney parks have closed, but did you know that Disney + streaming service has seen a 68% increase from pre-pandemic levels?  So, while Mickey is having a rough quarter, many companies are feeling pain in some areas of their business but finding opportunities in other areas.  Overall TV viewership (source: Motley Fool) seems to be up 32%,  therefore, I hope you have found a binge worthy solution to help keep your sanity during these self-isolation days.

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