While eight in 10 plan sponsors say they are familiar with retirement plan provisions of the CARES Act, they may be less well-versed in the potential impacts for their plans and on participants’ longer-term savings.
According to a new survey from the Secure Retirement Institute (SRI), a little more than half of plan sponsors (51%) feel, at least to some extent, that they would benefit from guidance from their DC plan’s recordkeeper in understanding how CARES may affect their plan.
The SRI survey questioned plan sponsors about their familiarity with the CARES Act, passed by Congress in March to help Americans manage the sudden economic fallout of the coronavirus outbreak and ensuing widespread unemployment. The SRI survey focused on the Act’s retirement provisions and plan sponsor needs and expectations of their plans’ advisors and providers relative to understanding how the Act affects their own plans.
The Act’s retirement saving provisions, of course, have the potential to deeply impact defined contribution (DC) retirement plans by expanding how workers can tap into their account balances when affected by the virus and/or crisis.
For eligible workers, CARES doubles the amount that can be taken as a loan, from $50,000 to $100,000. It also creates a new category of plan withdrawal, without the 10% penalty associated with traditional hardship withdrawals. A CARES withdrawal also allows the individual to pay taxes over a three-year period rather than in a single tax year.
The availability of the options is contingent upon whether the plan itself allows loans and/or hardships, and plans must be amended by plan sponsors to enable the new withdrawal options and limits.
Whether or not to adopt the withdrawal and/or loan provisions of the CARES Act is at the discretion of each plan sponsor. Nearly 4 in 10 (38%) do not plan to implement the expanded withdrawal capability or the increased loan capability.
Another one fifth (19%) are still unsure at this point, leaving 43% who do plan to amend their plans to offer at least one withdrawal update enabled by CARES.
The size of the plan also mattered when it comes to seeking guidance.
“Sponsors in the smallest and largest plans are less likely to look to recordkeepers for this help, although possibly for quite different reasons,” said Deb Dupont, associate managing director, SRI Institutional Retirement Research.
She notes that mega plan sponsors likely have robust on-staff plan and legal resources of their own. Sponsors of the smallest plans may simply not appreciate the potential implications for their retirement plans and employees.
The likelihood of accommodating CARES-enabled distributions increases with plan size; the largest plans are significantly more likely to have acted or plan to act to increase withdrawal options for their participants.
Plan advisors and recordkeepers may be able to leverage experiences and “lessons learned” from larger plan rollouts when guiding smaller plan sponsors in reacting to CARES provisions and in determining whether they are right for specific plans and plan sponsors.
- Bonus Fact: The SRI survey also found plan sponsors from private sector businesses are significantly more likely than not-for-profit organizations to be familiar with the CARES Act (81% vs. 61%).
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
