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Many of our clients are feeling the far-reaching affects of COVID-19, both from a health standpoint and a financial one. As a 401k TPA (Third Party Administrator) of retirement plans for dozens of organizations, the staff at PlanPerfect Retirement believe it’s important to try to unravel the confusing language of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act,) passed on March 27. The Act not only provides financial relief for individuals through stimulus payments and business loan assistance, it also provides several provisions regarding retirement accounts.
We want to ensure our plan sponsoring clients understand how it affects their retirement plans and that they can explain the provisions to employees participants in the plan, should they need to take advantage of them.
In a recent white paper by Ilene H. Ferenczy, J.D., CPC, APA, she outlines how the CARES Act affects both business owners and employees. Ferenczy is a nationally-known thought leader in the qualified retirement plan arena and a managing partner of Ferenczy Benefits Law Center LLP, an employee benefits law firm.
Participant employees in 401k and other retirement plans who have been negatively impacted by the coronavirus are able to take advantage of several benefits provided by the CARES Act. This includes individuals who:
There are four benefits outlined in the white paper that apply directly to these individuals.
Consult with your 401k Third Party Administrator to decide if a loan or distribution is better for your particular situation. In general, Plan Perfect Retirement experts recommend loans if you believe you’ll be able to pay the loan back during the extended repayment period. If not, the distribution may make more financial sense for you.
Besides helping individual participants in retirement plans, the CARES Act also allowed two provisions which benefit the employers who sponsor these plans.
Speak to your third party administrator at PlanPerfect Retirement to review potential action you may want to take that may limit an increase in funding requirements such as freezing your plan before the beginning of June.
Regardless of these benefits for individuals and plan sponsors, the pandemic will likely have a significant effect on business operations moving forward in the months and years ahead. We encourage you to reach out to your PlanPerfect Retirement specialist to discuss other coronavirus-related issues. As your 401k TPA, we’re here to make sure we help you minimize the economic impact of the virus. We may want to consider reducing 401k and profit-sharing contributions or suspending Safe Harbor 401k contributions midyear.