Compliance November 23, 2020

IRS Modifies CARES Act Due Date for DB Plan Contributions

The extended due date for contributions could help plan sponsors reduce PBGC variable rate premiums.

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The IRS has issued Notice 2020-82, which says it will treat a contribution to a single-employer defined benefit (DB) plan with an extended due date of January 1, 2021, pursuant to the Coronavirus Aid, Relief and Economic Security (CARES) Act as timely if it is made no later than January 4, 2021.

The IRS explains that the extension of the due date for contributions to January 1, 2021, was intended to allow employers sponsoring these plans to defer these payment obligations until calendar year 2021 to alleviate an additional adverse impact on their businesses that were already harmed by the COVID-19 pandemic. However, the agency said it realizes that financial institutions cannot transfer funds on the January 1 due date because of the federal holiday. “This effectively requires many employers to make these contributions prior to January 1, 2021, which would be inconsistent with the legislative intent to defer the payment obligation until calendar year 2021,” the IRS says.

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The Pension Benefit Guaranty Corporation (PBGC) also issued Technical Update 20-2, providing guidance and relief related to the timing of contribution receipts includable in the asset value used to determine variable rate premiums (VRPs) due in 2020. According to a post on October Three’s website, contributions made in 2021 (by January 4) are allowed to be counted for purposes of 2020 PBGC VRPs. “That possibility may be significant for, e.g., employers who want to make a CARES Act contribution that reduces 2020 variable rate premiums but would like to deduct that contribution in 2021,” October Three says.

The firm also notes that some sponsors can reduce 2020 PBGC VRPs by accelerating 2021 quarterly contributions to January 4, 2021. “Under this strategy, the sponsor, in effect, takes the amount of contributions required to be made for 2021 and contributes it for 2019,” October Three explains. “Doing that accomplishes two things: It creates a credit balance that can be used to satisfy 2021 contribution obligations; and it reduces the plan’s UVBs [unfunded vested benefits] and thus may reduce (for plans not at the variable rate premium headcount cap) the 2020 PBGC variable rate premium obligation.”

Data and Research November 23, 2020

COVID-19 Driving Keen Interest in Financial Wellness Programs

The programs proved to be quite effective in allaying retirement plan participants’ fears about market volatility.

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When faced with economic uncertainty and market volatility at the onset of the coronavirus pandemic, employees flocked to their companies’ financial wellness programs, Prudential found in a survey of nearly 700 retirement plan decisionmakers in May.

Seventy-two percent of these retirement plan executives said their financial wellness programs were in greater demand, with 28% saying the uptick was sizable. They also said employees were looking for a mix of financial advice and emergency assistance.

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“To have employees resoundingly turn to financial wellness resources serves as both confirmation of their value and an opening to build on this strong foundation,” says Harry Dalessio, head of institutional retirement plan services at Prudential Retirement. “As the pandemic has evolved, so have personal finances. Employers have an opportunity to meet the ongoing and changing needs that are surfacing.”

Sponsors said that when they heard from their employees at the onset of the pandemic, they were primarily focused on the immediate health and safety of their employees and the financial impact of the pandemic on the company. But even before the pandemic hit, more than one-quarter of sponsors said they were already planning to enhance their financial wellness offerings in a variety of ways.

The top five ways sponsors are looking to enhance their financial wellness programs are improving digital communications (33%), expanding the definition of hardship withdrawals to include disaster relief (31%), making it easier for employees to take out a hardship withdrawal (28%), adding a new financial wellness program (27%) and adding an in-plan retirement income option (25%).

Twenty-three percent of sponsors are considering adding an emergency savings option, expanding employer contributions and changing their fund lineup, including by adding a stable value investment option.

As far as their retirement plan is concerned, sponsors say the pandemic is causing them to consider improving plan design and offerings. Those planning to make no changes were clearly in the minority, at a mere 11%.

Dalessio says financial wellness programs also succeeded in calming workers’ nerves and preventing them from making hasty decisions in response to the market turbulence. Sponsors reported that they were not getting questions from workers about losses or delayed retirement.

Prudential says this is in line with what it experienced at its call centers, with just 10% of Prudential clients’ plan participants taking a hardship withdrawal, or a coronavirus-related distribution (CRD) or loan.

“Having access to financial wellness resources, including education about budgeting, emergency savings and debt management can help employees consider a range of alternatives rather than simply tapping their retirement plans,” Dalessio says. “This can deter workers from overreacting during a crisis, which can have a positive, long-term impact on their retirement security.”

Prudential conducted the online survey of 666 plan sponsors between April 22 and June 2.

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