At the first day of the virtual 2020 PLANSPONSOR National Conference, speakers on the Legislative and Regulatory Update Part I panel concentrated on how the Coronavirus Aid, Relief and Economic Security (CARES) Act has affected retirement plan sponsors.
Jodi Epstein, a partner with Ivins, Phillips & Barker, Chartered, said, “Going into 2020, we thought the agencies would roll out guidance on the SECURE [Setting Every Community Up for Retirement Enhancement] Act, which was passed in December 2019. We started to get questions from plan sponsors about adoption of the act. Then COVID-19 hit and the CARES Act came on the scene. The IRS and DOL [Department of Labor] both put out a huge amount of guidance on that, which I really appreciate because they have helped us sort it out.”
George Sepsakos, a principal with Groom Law Group, Chartered, agreed, saying, “We definitely have seen folks focus more on the CARES Act than on the SECURE Act due to the urgency of the moment, but, recently, folks are looking at retirement income issues. Providers that have not focused on PEPs [pooled employer plans] will be behind, because, in the last two months, there is more emphasis on that among many of our plan sponsor clients.”
Carol Buckmann, co-founding partner, Cohen & Buckmann, P.C., concurred that it is important for plan sponsors to familiarize themselves with PEPs, as the new plans will become effective January 1, but the problem is that the DOL has only issued guidance on how to register a PEP, as opposed to how to run one. “We need guidance on the administrative responsibilities of PEP providers,” Buckmann said.
“The other issue that plan sponsors have asked about so far in 2020 is whether the provisions of the CARES Act are voluntary,” Buckmann continued. “These two have taken up our time.”
With respect to the CARES Act, which permits participants who have been negatively impacted by the coronavirus pandemic to take out a coronavirus-related distribution (CRD) up to $100,000, Epstein said, recordkeepers worked rapidly to enable their platforms to handle the new distribution and made it an opt-out option for sponsors.
“The recordkeepers definitely took the lead to set this up immediately, and it was right that they did,” Epstein said.
What sponsors need to realize is that it is, indeed, voluntary whether they want to make this available to their participants, and that merely making that decision—a plan design decision—is a settlor function, not a fiduciary one, Epstein said. However, administrating CRDs is a fiduciary responsibility, she said.
Buckmann said one of the biggest fiduciary responsibilities related to CRDs is plan sponsors communicating the details of the program to participants. Recordkeepers have been assisting sponsors on this, she said.
Sponsors are not responsible for verifying that someone has been negatively impacted by COVID-19 because participants self-certify, Buckman said. Sepsakos said the government set very broad guidelines as to how people can claim to be impacted by COVID-19. A person could have faced a salary or working hours reduction, rather than an outright layoff or furlough, Sepsakos said. A participant is also eligible if his or her spouse was impacted.
However, sponsors do have some responsibilities to ensure that the CRD does not exceed $100,000 and that the participant doesn’t already have prior distributions that would have to be subtracted from what they can take in a CRD, Buckmann said.
“So, it worked out that there were good rules for plan sponsors that limited what they needed to do with respect to CRDs,” Buckmann said.
As to how many sponsors opted into this program, Epstein said, “Most plan sponsors said yes to COVID distributions,” she said. “Fewer said yes to higher limits on loans.”
Plan sponsors also need to know that if a participant took out a distribution in 2020 prior to the CARES Act being signed into law on March 27, the participant can call it a CRD, Epstein said.
She added that plan sponsors should stay tuned for potential additional rules from the government, especially if there is another wave of the pandemic and if the economy shuts down again. “Right now, we have fixed deadlines for CRDs at the end of this year,” she noted. “However, everything is in play right now.”
Buckmann said she has been encouraged that few participants are taking CRDs. “We definitely don’t want to see leakage or defaults,” she said. “On the other hand, the availability of loans encourages people to participate in the plan because they know they can have access to their money if they need it.”
Epstein added that participants will have three years to repay the distributions, which can be paid all at once or in increments over that time span.
Epstein said sponsors that adopt provisions of the CARES Act will not have to amend their retirement plan document until 2022, but she emphasized that they should keep good records of their decisions in the meantime.
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