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.

Compliance November 23, 2020

IRS Publishes 2020 Required Amendments List

There are no changes in requirements that generally require an amendment, but there are two changes that may require one.

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The IRS has published Notice 2020-83, which sets forth the 2020 Required Amendments List (RA List).

All required amendments lists will apply to both individually designed plans qualified under Internal Revenue Code (IRC) Section 401(a) and individually designed plans that satisfy the requirements of Section 403(b). In general, an RA List includes statutory and administrative changes in requirements that are first effective during the plan year in which the list is published.

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The IRS notes that Revenue Procedure (Rev. Pro.) 2019-39 provided a recurring remedial amendment period with respect to a form defect in a 403(b) individually designed plan. Generally, the remedial amendment period arising as a result of a change in 403(b) requirements ends on the last day of the second calendar year that begins after the issuance of the RA List on which the change in 403(b) requirements appears. December 31, 2022, generally is the last day of the remedial amendment period with respect to a disqualifying provision arising as a result of a change in qualification requirements that appears on the 2020 RA List, and a form defect arising as a result of a change in 403(b) requirements that appears on the 2020 RA List.

However, in general, for a qualified plan that is not a governmental plan or a 403(b) plan that is not maintained by a public school, the deadline to amend for provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the regulations thereunder is the last day of the first plan year beginning on or after January 1, 2022.

On the 2020 RA List, there are no changes in requirements that generally would require an amendment to most plans.

There are two changes in requirements that may require an amendment, as follows:

  • Difficulty of care payments treated as compensation for retirement contribution limitations: SECURE Act Section 116(b) increases the annual additions limit (Section 415 limit) for retirement plans to take into account difficulty of care payments. IRC Section 131(c) defines a difficulty of care payment as compensation to a foster care provider for the additional care required because the qualified foster individual has a physical, mental or emotional handicap. Section 415(c)(8)(A) provides that a participant’s compensation for purposes of Section 415(c)(1) is increased by the amount of difficulty of care payments.
  • Application of cooperative and small employer charity pension plan rules to certain charitable employers: The Coronavirus Aid, Relief and Economic Security (CARES) Act Section 3609 adds Section 414(y)(1)(D) to the IRC. That section provides that a cooperative and small employer charity pension plan (CSEC plan) is defined to include a defined benefit (DB) plan that, as of January 1, 2000, was maintained by a tax-exempt employer that met specific characteristics. A CSEC plan is not permitted to include the benefit restrictions of Section 436.
More information can be found in the text of Notice 2020-83.

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