Providing Assistance Rather Than Cutting Benefits

Organizations that are cutting their matching contributions to DC plans may be grabbing the headlines, but many plan sponsors are liberalizing plan rules. The Coronavirus Aid, Relief, and Economic Security (CARES) Act included temporary provisions for plan sponsors to make it easier for participants to access their retirement assets. In effect for the remainder of 2020, these include: allowing coronavirus-related disbursements free of the normal 10% early distribution penalty, increasing loan maximums, permitting the delay of existing loan payments, and offering distribution repayment provisions. To help savers rebuild assets, the CARES Act also waives all required minimum distribution requirements from DC plans through the end of 2020.

What You Should Know

  • The temporary rule changes in the CARES Act are voluntary. Plan sponsors must decide which, if any, new provisions will be made available.
  • Plan sponsors should work closely with their service providers and finance departments to ensure that any new provisions can be delivered operationally.
  • The temporary rules can be put into place immediately. Non-governmental plan amendments are not required until the end of the 2022 plan year.
  • CARES Act plan modifications should be documented along with the decision-making and approval process.
  • Communication with participants is critical. As plan sponsors explain the temporary changes that permit increased access to funds, they should balance this with information on the importance of long-term saving.
  • Plan sponsors need to ensure that participants have ready access to all the documents needed for withdrawals and loans.
65%
of plan sponsors increased, or plan to increase in 2020, access to in-service distributions from participants 401(k) accounts as a result of the CARES Act.[1]
64%
of plan sponsors allow, or plan to allow in 2020, participants to defer loan repayments as a result of the CARES Act.[1]
47%
of organizations allow repayment of coronavirus-related distributions during the next three years.[2]