Compliance March 23, 2020

Loan, Hardship Withdrawal Flexibility Among Possible Congressional Actions

Lawmakers are debating what will likely prove to be an unprecedented stimulus package aimed at helping businesses, workers and retirees recover from the economic effects of the coronavirus pandemic.

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At the end of last year, retirement plan industry lobbyists enjoyed a major victory with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and, up until the beginning of March or so, they had fully turned their attention to several pieces of follow-up legislation, such as the so-called “Portman-Cardin bill.”

However, the events of recent days relating to the novel coronavirus pandemic’s spread in the United States and around the world have very quickly changed the focus to securing emergency relief for retirement plan investors and employers. At this stage, Congress continues to debate what will likely prove to be an unprecedented economic stimulus package aimed at supporting a variety of economic groups and interests—from individuals and families to small businesses and Fortune 500 corporations.

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A version of the proposed legislation published late last week—which is already being subject to debate and amendment—includes a number of retirement plan-focused provisions. Of note, under the bill as first proposed, Section 72(t) of the Internal Revenue Code of 1986 “shall not apply to any coronavirus-related distribution,” so long as the aggregate amount of distributions received by an individual does not exceed $100,000.

The bill further proposes a doubling, from $50,000 to $100,000, on the limit placed on retirement plan loans before they are considered by regulators to be a distributable (and therefore potentially taxable) event. Additionally, the bill proposes extensions to loan repayment periods and greater flexibility for retirement plan sponsors to make amendments to their plan documents.

So far the congressional debate around coronavirus relief has not been totally straightforward, meaning the legislation may be changed significantly prior to passage. However, it does not seem that any of the retirement-focused provisions specifically are delaying consensus.

Separately, retirement industry advocates are calling on the executive branch of the federal government to take further action to help workers and retirees. Empower Retirement, for example, tells PLANSPONSOR it is asking the U.S. Department of Treasury and the Internal Revenue Service (IRS) for regulatory guidance and relief packages for Americans saving for retirement.

Echoing other providers, Empower wants to see retirement plan participants be allowed to withdraw retirement savings early without the normal 10% penalty tax; the establishment of “qualified disaster distributions” in income over three years; and the allowance of withdrawals up to $100,000 from qualified retirement plans with the income tax for the withdrawal spread out over three years.

“During this extraordinary time, the ability for Americans to have access to cash is essential,” says Edmund Murphy III, president and CEO of Empower. “Empower stands ready to join industry leaders, lawmakers and government regulators to work out a solution that provides relief to American retirement savers.”

Among a number of other retirement-focused advocacy organizations, the ERISA Industry Committee (ERIC)—an organization that focuses on supporting entities subject to the Employee Retirement Income Security Act (ERISA)—says it is also working with Congress to see that future legislation, including the Coronavirus Aid, Relief and Economic Security Act, or “CARES Act,” includes “much-needed provisions that support retirement plans and participants.”

“ERIC is pleased to see that the CARES Act has included preliminary relief for retirement plan participants,” says Aliya Robinson, senior vice president of retirement and compensation policy at ERIC. “We look forward to working with Congress to include additional provisions that address further worker and retiree needs and also assist employers in continuing to provide important retirement benefits.”

To this end, on Friday, ERIC joined more than 25 other organizations calling for immediate congressional action to provide relief to employers that offer retirement plans, plan participants and retirees in response to the current crisis created by the outbreak of COVID-19. Robinson says these recommendations would provide much needed financial assistance to workers who may be unable to work and to preserve current cash flow to employers to ensure that they can pay workers and continue their businesses.

Other specific policy actions being called for include streamlining loan procedures and liberalizing rules regarding hardship distribution; temporarily waiving the required minimum distribution rules; providing flexibility for dependent care expenses; providing interest rate projection relief for defined benefit (DB) plans; allowing flexibility in the suspension of safe harbor contributions; and liberalizing rules related to an accelerated vesting incident to a partial termination.

“During this uncertain time, ERIC will continue to work with lawmakers on relief packages as well as work on paid leave laws that will allow employers who already provide benefits to continue providing these benefits, which is more important now than ever,” Robinson concludes.

Firms are also calling for relief specific to pension plans, as detailed in a letter sent by Mercer to the relevant committees in both the House and the Senate. Among these proposals are the extension of the due date for all required pension contributions—including quarterly payments due as soon as April 15—that would otherwise be due during calendar year 2020, until at least the end of the year. Advocates say sponsors relying on this relief should not be subject to any penalties or reporting requirements that would normally apply to a delay in funding.

Mercer and others are also calling for an extended deadline for certain administrative tasks, such as preparing a Pension Benefit Guaranty Corporation (PBGC) 4010 filing, which is April 15 for employers with calendar-year fiscal years, and the mailing of the annual funding notice to all participants, an action required by April 29 for calendar-year plans.

Investing March 23, 2020

ICI: Mutual Fund Industry Should Fall Under ‘Critical Services’

‘To ensure access to invested monies for shareholders across the country,’ ICI’s president asks the Board of Governors to consider mutual funds and their providers for exemptions to shelter-in-place orders.

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In a letter to the governors of Maryland and New York, chair and vice chair of the National Governors Association, respectively, Investment Company Institute (ICI) President and CEO Paul Schott Stevens asked that the mutual fund industry and providers of critical services to funds be taken into account as they impose “stay-at-home” directives.

“Many states are home to headquarters or critical operations for numerous mutual fund sponsors where Americans have entrusted their savings to meet a wide range of financial goals—to buy a home, to pay for schooling for themselves or their children, to retire or to enhance their financial security generally. Those mutual fund companies must remain in operation to ensure access to invested monies for shareholders across the country,” Stevens wrote.

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He cites a memorandum issued last week from the head of the U.S. Cybersecurity and Infrastructure Security Agency “as useful guidance for any U.S. jurisdiction considering a shelter-in-place order,” pointing out that it names financial services as an industry that provides critical infrastructure and identifies categories of workers who should be deemed essential. He also cites “historical precedent in presidential directives identifying financial services as a component of the nation’s critical infrastructure”—specifically naming directives issued by Presidents Bill Clinton and Barack Obama.

Stevens says that while most mutual fund firms have ordered much of their staff to work from home, not all functions can be done from home. “Critical information technology and data security activities, such as maintaining optimal computer systems’ performance to support shareholder needs and protect shareholders’ information from cyber criminals, require personnel physically present at a facility. Staff also need to pick up and process mail to ensure that shareholder transactions, like purchases and redemptions, are completed quickly and efficiently on behalf of retail investors. Call centers where fund shareholders contact the fund complex with questions and concerns may need some staff in the facilities to maintain full support of the fund shareholders,” he wrote.

Stevens adds that many of the services described are outsourced to service providers and asks that those providers also be considered when determining essential services exemptions for shelter in place orders.

“As you and your colleagues consider shelter-in-place orders and other measures, it is imperative that mutual funds be granted the same exemption that states would provide to the banking community to ensure mutual fund shareholders can manage and access their savings during such anxious and trying times,” Stevens concludes.

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