PLANADVISER - July/August 2020 - 8

trends
Warn Your
Clients
Sponsors face hard
choices about
COVID-19 hardship
withdrawals
ROBERT
Consultants,
LAWTON, president of Lawton Retirement Plan
two provispoke
to PLANADVISER about
sions in the Coronavirus Aid, Relief and Economic Security
(CARES) Act: the creation of coronavirus-related distributions
(CRDs) and the doubling of the limit on plan loans.
PLANADVISER: Under the CARES Act, a CRD may be drawn
in any amount up to $100,000. The normal 10% penalty tax
is waived, and the individual taking the CRD may spread
the reported income over three years for tax purposes.
What else should plan sponsors understand right off
the bat about CRDs and making them available to their
participants?
LAWTON: The CARES Act does not require plans to make
this relief available. Thus, if a plan sponsor has a strong
conviction that its plan population has not greatly suffered
financial harm as a direct result of the pandemic, the
prudent course of action is to refrain from permitting this
new type of penalty-free hardship withdrawal.
You should also know that the CARES Act does not
require participants who take these withdrawals to show
evidence of financial hardship or loss, as would be required
under normal hardship withdrawal provisions.
PA: Are there circumstances where drawing a CRD may seem
appealing but will in fact come back to harm participants?
LAWTON: Taking advantage of these provisions will generally
not be in most participants' best interest. First, even
though participants have the option of paying these withdrawals
back, the vast majority won't. Second, a significant
number of participants who withdraw up to $100,000 from
their retirement plan accounts will destroy their chances of
retiring with a sufficient balance.
And finally, the bankruptcy protections afforded to
retirement plan assets should be considered. Any possibility
that the participant would have to declare bankruptcy is
critical to factor in when considering these withdrawals.
Most participants are unaware that they can declare bankruptcy
and protect their retirement savings.
PA: Is expanding plan loans a better idea for some, perhaps
most, plan sponsors?
LAWTON: If a sponsor feels it needs to provide greater
employee access to plan balances, and its plan permits loans,
it can adopt the CARES Act's relaxed loan provisions instead
of the withdrawal provisions. While I don't favor 401(k) loans,
they are better than withdrawals during this pandemic. -PA
How Valued Is the Gift of Stock?
Age plays a role in how
much workers appreciate their
employer awarding them equity
in the company. Half of younger
employees place minimal value
on it. Contributing factors include
being more mobile in their
careers, lack of understanding
of equity compensation plans,
and an eagerness to sell as
soon as their award vests.
l Minimal value l Moderate value l High value
30%
31%
Ages
18-34
19%
Source: UBS Workplace Wealth Services, " UBS Participant Voice "
44%
50%
Ages
35-50
20%
36%
44%
Ages
51+
23%
8 | planadviser.com July-August 2020
Art by Jackie Ferrentino
http://www.planadviser.com
PLANADVISER - July/August 2020

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