The American Retirement Association is taking a multipronged approach to retirement plan relief in the face of the Coronavirus health and economic crisis.
“We’re taking both a regulatory and legislative route, as we normally do,” Nevin Adams, ARA’s Chief Content Officer, said when asked about the organization’s recent efforts. “The CARES Act did a lot for individuals, and on some level, it will do a lot for businesses, but it didn’t do much for businesses with regard to their retirement plans.”
It’s the reason ARA sent a letter to the Treasury Department in late March, urging assistance in the areas of safe harbor, temporarily-furloughed plan participants and administrative filings for plan sponsors.
“What we’re trying to do with our request is to give employers the breathing room they need, so they that don’t feel like they have no alternative but to terminate these plans, particularly safe harbor plans,” Adams added.
Noting the requests are reasonable and “not ridiculous stuff,” Adams pointed to the counterintuitive nature of what’s currently happening.
“We mostly spend our time worrying that people have not put enough aside for retirement and have not given it enough thought, so it feels a little backward to now be making it easier for people to take their money out and avoid putting money in, but that’s the necessity for now.
“Thank God these plans exist,” he said, “because I’m not sure what America would be doing without them.”
- SEE THE FULL TEXT OF THE LETTER HERE
Signed by ARA Executive Director/CEO Brian Graff and Martin Pippins, Director of Regulatory Policy for the American Society of Enrolled Actuaries (one of five affiliated organizations under the ARA umbrella), the letter covered:
Safe harbor
Top-heavy rules might trigger a plan termination, and ARA recommended that Treas. Reg. §§ 1.401(k)-3(g) and 1.401(k)-3(e)(4) be modified to provide that safe harbor contributions may immediately stop accruing upon an employer memorializing such intent (formal or informal).”
Also, “In order to encourage employers affected by the top-heavy rules to keep plans in existence, modify Treas. Reg. §1.401(k)-3(g) to provide that a plan will not fail to satisfy safe harbor status provided: (1) the cessation or modification is due to a substantial business hardship … and (2) no highly compensated employee …may make elective deferrals or employee contributions for the remainder of the plan year in which safe harbor contributions are ceased or reduced.
Partial termination trigger
“ARA recommends that a temporary period for the 2020 plan year be established whereby partial terminations are deemed not to occur if the plan sponsor’s business has been affected by the Coronavirus emergency and if those employees are rehired by December 31, 2020,” the letter states.
Alternatively, ARA recommends “that the Service provide guidance that, under the facts and circumstances, it will find that a partial termination did not occur if the number of active participants under the plan as of a date that is no more than six months after the national emergency is lifted is not fewer than 80% of the number of active participants on the day prior to March 13, 2020 (the date the national emergency was declared).”
Default date
“ARA recommends that plan sponsors be able to change the date of default from the date of termination of an employee, to a later date that is not earlier than December 31, 2020, so that a participant is not penalized severely if they are rehired some months later when the business is reopened.”
Hardship distributions
As of the letter’s draft, March 24, ARA noted that “our members have reported that plan sponsors are uncertain whether the national emergency declaration qualified as a ‘heavy and immediate financial need’ under the Service’s safe harbor distribution reasons under 1.401(k)-3.
ARA recommended the IRS issue “formal or informal guidance” clarifying that the current national emergency is a disaster declared by the Federal Emergency Management Agency (FEMA).
Administrative requirements and filings
ARA concluded by recommending a temporary relaxation of administrative requirements for hardship withdrawals and loans, that the “IRS clarifies that Form 5498 reporting has been delayed until at least August 31, 2020, and that reporting changes to Form 1099-R and Form 5498 with respect to forthcoming distribution relief be optional for the 2020 tax reporting year.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
