Restarting Retirement Plan Participation
While some employees are still facing financial challenges, other employees may be ready to get back on track with their retirement goals—and many of them may need information so they can determine their next steps. Plan sponsors should start by letting participants know the options that are available to them for the following three scenarios:
1. Refunding Retirement Plan Withdrawals
The CARES Act allowed employees under 59½ impacted by COVID-19 the opportunity to withdraw the lesser of 100% or $100,000 from their vested retirement plan account balances without the usual 10% federal tax penalty (up until December 31, 2020). In addition, participants could avoid federal taxes on this distribution if they returned the amount withdrawn into their retirement plan or an IRA within three years.
- Plan participants who have withdrawn from their retirement plans with the intention of re-designating these funds for retirement, after their immediate financial needs have been met, will need to know what their company retirement plan allows in terms of re-contribution.
- Providing communication around this issue and next best steps will enable them to devise a plan to meet that three-year CARES Act repayment deadline.
2. Repaying Loans
The CARES Act allowed plan participants affected by the pandemic to suspend loan payments until year-end 2020. At that time, the loan will be re-amortized to include the missed payments and interest accrued during the suspension period. The loan term for repayment may also be extended. Plan participants were also allowed to borrow from their retirement plans to the lesser of 100% or $100,000 of vested retirement plan account balances (up until December 31, 2020).
- Reminding plan participants who used this loan suspension provision that loan payments will start at the beginning of the year and the loan will be re-amortized prior to year-end will be a helpful reminder so they can plan accordingly for the New Year.
- For those who started new loans, reminding them of the repayment steps as we approach the New Year will be helpful.
3. Restarting Contributions
During the economic shut down and times of financial uncertainty, some plan participants may have stopped retirement plan contributions.
- For plan participants now better able to contribute, letting them know how to do that will help them on their way. Prevent procrastination by providing information to all your plan participants on how to restart retirement plan contributions. It may also be helpful to include information for those already participating on how to increase contributions as we move forward into 2021.
Making It Easier
Providing a road map for restarting plan participation for any of these three scenarios is a timely step for plan sponsors as we close out 2020 and enter 2021. A quick communication or FAQ for participants could be helpful. Consider ABG your resource about any of these participant scenarios. Please reach out to your trusted ABG Southwest advisor or contact us. We are ready to help you navigate this unprecedented time and meet your participants’ needs.