During the opening day of the Best of PSNC (PLANSPONSOR National Conference), retirement plan industry experts discussed the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
Benjamin Grosz, a partner with Ivins, Phillips & Barker, Chartered, said with respect to the CARES Act and the SECURE Act, “critical amendments to plan documents do not need to be adopted this year, but by the end of 2022. For governmental plans, the deadline is extended an extra two years.”
Since these deadlines are so far out in the future, and none of his plan sponsor clients are adopting these amendments this year, Grosz said it is important for sponsors to “remember your actions and have documentation of the details of what you did.”
If sponsors permitted participants to take out COVID-19-related loans this year, they need to be aware that starting on January 1, those participants will be responsible for repaying those loans, said Jodi Epstein, a partner with Ivins, Phillips & Barker, Chartered. That means it is imperative for those sponsors to ensure their recordkeepers are able to process those repayments.
Grosz agreed that plan sponsors should educate themselves about the processes their recordkeepers have in place to handle those COVID-19-related loan repayments, “so that they can guide their plan participants in the right direction.”
Epstein also noted that the SECURE Act permits participants to take qualified birth or adoption distributions (QBOADs) in 2020 of up to $5,000 per child without having to pay the 10% early withdrawal penalty.
That law also laid out guidance on pooled employer plans (PEPs), which she said could be a great, low-cost and administratively simple way for smaller employers to offer retirement plans. Epstein said she expects PEPs to gain more attention in 2021 and beyond.
Grosz said his clients have been asking him about PEPs, but he is advising those that already have a retirement plan and are satisfied with it to stick with that plan. Meanwhile, Grosz is advising those sponsors without a plan that are curious about PEPs to wait to see how successful PEPs turn out to be.
If a participant took out a distribution that they characterized as a QBOAD or coronavirus-related distribution (CRD) to the IRS but the plan did not specify that either was permissible, the sponsor is not responsible for what that participant tells the IRS, Epstein said. “It is up to the participant to decide what they are doing when they file their tax return,” she said. “It is not the plan sponsor’s problem.”
Grosz said he is advising his clients that have neither of these provisions to refrain from advising their participants on characterizing distributions to the IRS. “For plan sponsors, this is another example of not giving plan participants advice on how this works, because that will just raise their risks,” he said. “I expect more guidance to come from the agencies on this.”
As for the requirement in the SECURE Act that recordkeepers, at least once a year, express what a participant’s account would translate into as monthly retirement income starting at age 67—as a single life annuity (SLA) and a joint and survivor annuity (JSA)—Grosz says this is an important development that will go into effect next September.
One key problem with this requirement, however, Epstein said, is that the SECURE Act says the recordkeeper should only work with the current balance in the account, not the projected balance at age 67. So if a person is only 20 years old and has just $2,000 in their account, the projection is basically meaningless, she said.
She noted that many recordkeepers are advancing this guidance to project future monthly income, based on a person’s deferral rates and future years in the workforce, so it is incumbent on sponsors to ask their recordkeepers about their calculations to ensure they are comfortable with them. “These are complicated issues to explain to plan participants, and there are a lot of assumptions that go into these calculations,” Epstein said. “Sponsors have a fiduciary obligation to communicate features of their plan and participants’ account accurately. Even if the calculation is coming from the recordkeeper, it will have the plan sponsor’s logo on it. I am cautioning plan sponsors to spend a little time on this and not to assume that the recordkeepers’ drafts on this will be right.”
Grosz noted that one of the many pieces of guidance to come out from the Department of Labor (DOL) this year dealt with offering private equity investments in retirement plans. He said it is important for sponsors to understand that this is only an option available to them—one that many like for diversification purposes—but that it is not a requirement.
Both Grosz and Epstein said sponsors should have similar takeaways on the DOL’s guidance on offering environmental, social and governance (ESG) investments in retirement plans. Grosz said it does not make sense to make ESG investments a qualified default investment alternative (QDIA) option, but Epstein said ESG options in an investment lineup, particularly as part of a target-date fund (TDF)’s glide path, are likely to become more prevalent.
As far as lawsuits against plan sponsors are concerned, Grosz says these cases continue to proliferate and move down market and that, for these reasons, plan sponsors need to pay close attention to these cases and document all the decisions they make with respect to their plans.
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