PLANADVISER - May/June 2020 - 26

service strategies //
" Plan violations concerning distributions occur somewhat
frequently in a few different forms, " Smith says. When
violations occur in a plan loan, " either they're extending
plan loans to people who aren't eligible or who have hit the
maximum number of loans, or the administration of loans
gets out of line with what the plan document says. "
What has changed. The Coronavirus Aid, Relief and
Economic Security (CARES) Act, passed earlier this year,
includes several new rules addressing distributions, which
plan advisers should discuss with sponsor clients.
If plan sponsors choose to, they may allow any participant-spouse
included-who can demonstrate an " adverse
financial consequence " from COVID-19 to take a coronavirus-related
distribution (CRD) of the lesser of $100,000
or 100% of the balance from the participant's workplace
retirement account. The usual 10% withdrawal penalty is
waived. Participants have three years to restore the funds
or pay income taxes on them. The legislation also increased
the maximum loan amount.
the ramifications of such decisions with their clients, says
Dave Ragona, director of retirement operations at Human
Interest, a firm that provides automated 401(k) plans, in San
Ramon, California.
" When you take the safe harbor away and top-heavy
testing comes back, it can end up costing a lot more money, "
Ragona says. " If you're doing it to save money, it can be
counter-productive. "
5) Plan Document Adherence
For plan sponsors, one of the most basic tenets of operational
compliance is adherence to plan documents. That
means making sure the documents reflect both current
regulations and company policy. Any changes to plan policies
typically require plan amendments as well as notification
of plan participants.
" Even if what you're doing is legal under the tax code, if
it doesn't conform to the plan documents, you're still doing
it wrong, " Ragona says.
What has changed. Due to COVID-19
" Even if what you're doing is legal
under the tax code, if it doesn't
conform to the plan documents,
you're still doing it wrong. "
Plan sponsors that opt to make such distributions available
must inform participants about whether they are
eligible and then be available to answer questions and facilitate
both the distributions and their potential repayment.
Additionally, the coronavirus relief act suspended RMD
requirements this year, after the SECURE Act pushed the
age of mandated RMDs to 72.
4) Plan Testing
Sponsors of a non-safe-harbor plan must run annual tests to
make sure their plan is not top-heavy and does not discriminate
in favor of the highly compensated employees (HCEs).
If a plan fails the testing, the sponsor must either refund
excess distributions to the HCEs or make additional contributions
on behalf of other workers.
" If a plan sponsor is working with a recordkeeper that
provides the testing and is on top of it, [that provider] will
usually indicate to the sponsor if it looks like it's going to fail
and allow it to take corrective measures, " Smith says.
What has changed. Employers that are furloughing
workers, reducing wages, and cutting or suspending their
employer match to 401(k) plans are likely also changing
their actual deferral percentage (ADP) or actual contribution
percentage (ACP).
In addition, plan sponsors that suspend safe harbor
contributions will also now have to perform top-heavy
testing, so it is important for plan advisers to talk through
restrictions on travel and gatherings, plan
sponsors may not be able to hold the retirement
plan committee meetings required
by plan documents in the same, in-person
way they have in the past, but they still
need to have those meetings, even if doing
so virtually.
Almost one-third of sponsors answering
survey, which
a
PLANSPONSOR pulse
targeted respondents to the 2019 PLANSPONSOR
Defined Contribution (DC) Survey, said they
discussed reducing or suspending their matching contributions;
34% of the nearly 33% had already acted or are likely
to do so.
Plan advisers should also make sure that sponsors make
necessary amendments to their plan documents right now,
including with regard to matching contributions or changing
policies that speak to eligibility of new hires.
One exception: Changes to distribution rules under the
coronavirus relief package do not require an amendment to
plan documents until end of plan year 2022.
" That's crazy for all of us in the industry who have been
taught that you have to administer the plan according to the
document terms, " says ERISA attorney Fred Reish of Faegre
Drinker Biddle & Reath LLP in Los Angeles, and a columnist
for PLANADVISER.
" But, on this occasion, " he continues, " you can make
an administrative decision-which has the same effect as
making the amendment-today, but you don't have to draft
and sign the agreement until 2022. "
To limit mistakes, however, plan sponsors should still
keep records of when and how they implement such provisions.
" Get it recorded in a memo or in a committee meeting,
so that, when everyone consciously makes a decision, you
have something in writing to refer back to, " Reish says.
" That would be a big part of operating this correctly. "
-Beth Braverman
26 | planadviser.com May-June 2020
http://www.planadviser.com
PLANADVISER - May/June 2020

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