Four Things Retirement Plan Committees Should Be Doing Right Now
The global pandemic may have forever changed how businesses conduct their operations and how we interact as a society. As states slowly reopen following stay-at-home orders, plan sponsors may be faced with important decisions about their employer-sponsored retirement plans. Here’s a list of things plan sponsors should be doing right now to address these issues head-on:
REVIEW FIRST QUARTER INVESTMENT RESULTS
The S&P 500 experienced both its largest daily point loss and its largest daily point gain during the first quarter of the year and the unprecedented market volatility put all types of investments to the test. Your Investment Committee should meet to review the performance of the investments offered in your retirement plan and determine if any changes are needed. Pay special attention to the performance of your default investment, often a target-date series, as not all target-date funds are created equally.
DISCUSS THE PROS AND CONS OF ADDING CARES ACT PROVISIONS
Depending on the recordkeeper you use to administer your retirement plan, the CARES Act provisions may already be available to your participants. Your Benefits Committee, if separate from your Investment Committee, should meet to discuss the pros and cons of offering the provisions in your plan. For example, the decision to offer both Coronavirus Related Distributions (CRDs) and Covid Loans could allow a participant to extract up to $200,000 from their retirement account. Additionally, some providers are allowing plan sponsors to customize the CARES Act provisions to limit the amount and the money sources available for withdrawal.
REVIEW YOUR PLAN DESIGN
Depending on the severity in which the global shutdown has impacted your business, you may be considering a change to your employer match or profit sharing contribution. While plans with discretionary contributions are free to make changes at any time, there are important considerations for plans with stated matching formulas as well safe harbor plans, which only allow certain mid-year changes. If an amendment is required to make the desired change, consider other plan design changes that could be rolled up into the same amendment to reduce your legal costs.
COMMUNICATE WITH YOUR EMPLOYEES, BUT USE CAUTION
For some plan sponsors, it has been business as usual during the stay-at-home orders. These organizations were able to allow their employees to work remotely and utilize new technology to continue their daily operations. For others, however, the stay-at-home orders have resulted in entire workforces being furloughed, with many employees not knowing where to go for financial relief. Before you communicate with your employees, consider the impact of the message. While you may find it necessary to inform your employees about the new CARES Act withdrawal options, caution participants about the impact such withdrawals could have on their ability to retire in the future. An employer-sponsored retirement plan should always be viewed as a lender of last resort.