What Can HR Professionals do to Help Their Employees From a Retirement Plan Perspective

Posted on 06/01/2020 12:00 am  /   May/June 2020

2020 is off to a rough start. First the COVID-19 issues have hit the economy hard and many companies are experiencing financial difficulty, causing furloughs, layoffs and terminations. While it has stabilized, the stock market experienced significant losses earlier in the year. As we write this, we are experiencing the effects of the protests.

We know as an HR Professional you wear a lot of hats and are dealing with issues on many fronts. This article will deal specifically with help with Retirement Plan Issues.

We expect that you could be getting questions on several fronts regarding your plans and we want to layout some helpful ideas for communicating and helping your employees.

This situation is fluid and there are additional laws in the works that may change or provide more flexibility, additional relief, and guidance. There are a lot of resources but we are a big fan of the American Society of Pension Professionals and Actuaries website under the news section.

Since the markets have stabilized, questions about the market declines may have slowed down. One of the most helpful things you can do with a participant with a self-directed account is to keep them from making changes to their accounts based on the headlines and ups and downs of the stock market.

What has happened in the last couple of months is a perfect example. At one point the U.S. Large Cap markets were down around 30% and now they are down about 10%. If that participant would have sold at the bottom and not gotten back in the markets, they could have missed out on the 20% rebound. Help participants stick with a long-term strategy.

It is certainly not in your firm's best interest to give investment advice. You can help participants understand that making changes based on market movements or headlines rarely works out in their best interest.

If possible, direct them to the plan's investment advisor. A conversation with them may be the best course of action.

If your company has had to furlough, layoff or terminate employees, what does that mean regarding the plans? Furloughed employees are generally not terminated if they are expected to come back to work with your company at some point. This means they are not eligible for a distribution from the plan for separation from service. If they are not rehired, they would then be considered terminated for separation of service distribution eligibility purposes.

What do you do when a furloughed employee comes back? If they were a participant in the plan before, they should be given the opportunity to begin deferring again if it is a 401(k) plan. Depending on the amount of time they were out, they will likely come back into the plan like nothing happened. Confirm that with your record keeper or advisor.

Today layoffs are generally expected to be permanent and therefore those employees would qualify for a separation from service distribution. Obviously, a terminated employee would be eligible for a distribution. Remember, in many cases leaving money in the plan may be in their best interest.

If you have employees that take a distribution, you can assist in this area as well. If an employee takes a distribution, and rolls that money into an IRA, they can take money from the IRA as needed. If they only need a portion of the original amount rolled into the IRA, then they only pay taxes on the portion they withdraw from the IRA, not the entire original distribution amount. This also potentially keeps some money invested for retirement.

Having the participants call the 800 number for the record keeper for the plan is usually the best approach unless your plan has online distributions which is becoming more popular. Either way the record keeper is where the distribution questions should be sent.

One of the important things to keep in mind regarding layoffs and terminations is partial plan terminations. A partial plan termination occurs when 20% of the plan participants are terminated. It is a little more nuanced than that but that is a good barometer. If a plan experiences a partial plan termination, the terminated participants become 100% vested. Talk with your advisor if you think you are nearing that threshold.

Most plans today have loans and hardship distributions and we would expect to see an uptick in the use of those plan provisions. In addition, if a plan adopts them, COVID Distributions and loans can be added to the plan. Ask your record keeper or advisor for help with those details.

The COVID Distributions and Loan provisions may be helpful to participants that are still employed but do not qualify for other distributions.

This means that distribution, loans, and loan payment suspensions for COVID purposes can be made if the plan elects these provisions be added to the plan. The length of this article does not allow us to get into the details, but it is worth looking into if you have not done so already. Contact your record keeper or advisor to get those provisions added if appropriate. They can also speak to the pros and cons of adding these features. These could prove to be quite helpful for your employees.

Remember Required Minimum Distributions have been suspended for 2020.

In these times where most employees are working offsite utilizing the new DOL Electronic Disclosure Rules may be a cost savings and efficiency improvement, both now and in the future. The new rule becomes effective July 27, 2020 and allow the use of email instead of hard copy mailing in most cases. The new law can be found on the DOL website under the New Electronic Disclosure Rules. If you Google DOL New Electronic Disclosure Rules the actual law should come up. There may be other good resources like Plan Sponsor Magazine's site.

Due to the space allowed for this article we really could not get into the details on most of these topics. The goal of the article was to give the HR Professional areas to discuss with Advisors and Record Keepers that may be beneficial to your firm or employees.

Sean Duggan, CPC, TGPA, CPFA, AIFA works for Moneta Group, a St. Louis based financial advisory firm as a Retirement Plan Advisor. Moneta Group manages all aspects of the retirement plan it serves.