By Pension and Benefits Editorial Staff
Nearly half (44.1%) of 152 plan sponsor respondents are still deciding which of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act provisions to implement, according to a survey by the Plan Sponsor Council of America (PSCA), part of the American Retirement Association. Larger plans (plans with 5,000 or more participants) are more likely to have made a determination of which CARES Act provisions to implement, with two-thirds already making a decision (66.0%), and fewer than half of smaller plans (plans with fewer than 200 participants) having (48.3%) made one.
“Employers are being forced to make difficult decisions between business needs and what is in the long-term best interest of their participants,” says Hattie Greenan, Director of Research. “They want to provide immediate relief to employees directly impacted by COVID-19 but are also thoughtfully considering the impact on their employees’ long-term financial stability and ability to retire.”
In general, plan sponsors are more open to adopting emergency distribution provisions than increasing loan limits, with nearly half (45.4%) already moving to adopt distribution provisions, compared with just a third (32.2%) adopting the new loan provisions.
Additional findings include:
- COVID-19 distribution: Nearly 70% of large employer are allowing the distribution of up to 100% of the vested account or $100,000 versus only 20.7% of smaller employers.
- Distribution repayment: Overall, nearly half of respondents (46.7%) have embraced the option to allow repayment of coronavirus-related distributions during the next three years, with 68.1% of large organizations allowing it versus only a third of smaller organizations.
- Loan limits: While a third of respondents overall are increasing the plan loan limits in COVID-19 qualified circumstances to $100,000 or 100% of vested account balances, this is true of only 17.2% of small organizations versus nearly half (46.8%) of large organizations.
- Loan payments: More than 60% of large organizations are suspending loan payments due on or before December 31, 2020 and deferring repayment for up to a year, versus only one-in-five (20.7%) of small organizations.
About one-in-ten (9.2%) are not planning to adopt any of these new options, though that is the case at only 2.1% of large organizations.
“During the financial crisis of 2008-2009, about 20 percent of companies suspended or reduced plan contributions, and most resumed them relatively quickly,” stated Greenan. “While the current situation is very different, our current survey results suggest approximately the same numbers. Whether they hold largely depends on the length and ultimate severity of the current crisis, especially as it relates to small businesses.”
Plan changes. The survey found that most plan sponsor respondents (76.5%) are not currently contemplating changes to their current plan designs as a result of the COVID-19 pandemic, including more than 90% of small organizations. However, more than 20% of large organizations indicated they are suspending matching contributions, while only 3.6% of small plans have moved to do so. More findings include:
- Suspending matching employer contributions: 16.3% of plans;
- Reducing matching employer contributions: 8.7% of plans;
- Suspending non-matching (profit sharing) employer contributions: 6.5% of plans; and
- Reducing non-matching (profit sharing) employer contributions: 2.2% of plans.
The PSCA notes that the CARES Act and its provisions are just two weeks old. Plan sponsors and their service providers are still dealing with an enormous array of complex human resource policy, employment, compensation, and benefit issues, according to PSCA.
Source: Plan Sponsor Council of America press release, April 14, 2020.
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