One thing that came through loud and clear in the responses to last week’s Reader Poll is that we’re all dealing with a lot of questions—and it’s still early. This week we asked readers how plan sponsors planned to get the word out—and what they think things will look like when we look back from year-end.
Well, of course, it’s early yet, every situation is different, and the worst of the economic impact is perhaps still ahead. Last week we asked about the likelihood of plan sponsors adopting the new expanded loan and distribution options in the CARES Act.
Communication Approaches
Asked how they thought their plan sponsor clients would get the word out:
40% - communicate the new options, but also remind participants of the importance of retirement savings.
17%- communicate the new options, but discourage use of the options.
7%- all of the above.
26%- some of all of the above.
Nearly 6% said they had “no earthly idea (yet).” However, none expected their clients to aggressively promote the new options.
In fact, based on the comments accompanying these responses, it’s easy to get the sense that plan sponsors—at least those with which this week’s respondents work (not to mention the respondents themselves)—won’t be pushing these options. Here’s a sampling:
“Depending on their economic condition, many will likely make the options available but will quietly communicate their availability,” explained one reader. “Depends upon the company—if they have laid off/ furloughed a significant portion of their employees or not,” echoed another.
“We encourage plan sponsors to not provide advice or encourage/discourage participants to take certain actions. We encourage plan sponsors to remember that they should ask their participants to reach out to our advisory team. Their goal should be to simply inform their participants,” noted another.
“Most our plan sponsors are choosing to not actively notify employees of these provisions, letting them come to HR or the recordkeeper if they need it. Our plan sponsors who have furloughed employees or have had to lay off employees are more actively distributing this information,” said another.
“About 30% of our clients are moving forward because they think participants need access to these provisions but also ask us to include a lot of information in the employee notices outlining the reasons why it may not be a good idea to access these provisions,” explained one reader. “I continue to scratch my head since we show them data that shows that employees haven’t even been accessing the regular loan provisions in the plan.”
“I have very few aggressively promoting,” noted another. “Most of those adding are only letting employees know they are available if they ask.”
“We have had plan sponsors ask about the options, but the need for clarification/additional action by IRS and DOL is making them hesitate. Few have adopted any of the options, so far.”
“Most are opting to do nothing and not offer any COVID-19 distributions nor loans. Loan deferment is popular but allowing the $100,000 loans is insane for the average Joe. They would not have the ability to pay that loan back in 5 years.”
“90% of our clients are not adopting the provisions at all,” said another. “Even some of the clients who have qualified individuals are not adopting them because they intend to bring their people back and do not want them to empty out their retirement savings.”
“One of our plans had to furlough 1,600 of their EEs on 3/27 (roughly 70% of their workforce), so the CARES Act will impact their participants’ decisions on whether or not to take money out of their retirement plans,” said another. “Some have already requested the distributions but this is only the beginning as the pandemic continues.”
“Most of our plan sponsors have adopted the CARES Act provisions, but do not plan on promoting them,” noted another. “Rather they will counsel individual employees when they have a need.”
“Of the clients that adopted it readily (knew they had people in financial trouble right now) they promoted it,” observed another.“The rest are wait and see.”
”Although it varies by client, for most clients we have chosen not to push this unless a participant calls us. The exception to this are the restaurant clients etc... that have gone through major furloughs,” explained another reader. “For them we have made participants aware of the option but not pushed or discouraged.”
“I think everyone wants employees to have access should they absolutely need the money. But everyone is also concerned about employees accessing who don’t really need or, worse, predatory schemes to get them to take their money out of the plan,” cautioned another. “We are already hearing radio ads suggesting.”
“We have phoned every single client and spoken to a plan fiduciary and counseled them on the new provisions versus any current plan provisions which employees may utilize to meet any increased needs,” said another. “To date, no client has added a single provision, but if/when more clients begin layoffs I think we will see more adoption. Many of our clients are applying for PPP and therefore delaying any potential layoffs so the increased need for employee access has not and/or may not be needed.”
THERE ARE MORE READER COMMENTS ON COMMUNICATION AVAILABLE HERE
2020 ‘Hindsight?’
And then, acknowledging once again that it’s early yet, every situation is different, and the worst of the economic impact is perhaps still ahead—but now that the CARES Act has expanded access to retirement accounts as a resource during this critical time, we asked readers what they thought the total result would be at the end of 2020 when we look back at these last several months.
A clear plurality—nearly 46%—thought that total loans and distributions will be up, probably by at least 25%. Another third (34%) agreed that total loans and distributions will be up, but only 10% or so. As for the rest:
10%- total loans and distributions will be up by at least 50%.
5%- Total loans and distributions will be about what they normally are.
5%- Total loans and distributions will double.
1%- Total loans and distributions will be up by 200%.
“20%-50% given the activity we’re already seeing,” explained one reader. “It can be higher if the economic shutdown lasts longer than the current expected early June timeframe.”
“So far the majority of our clients’ employees are most interested in taking advantage of the market. Even the employees who I spoken with who have been laid off are choosing to wait on pulling 401k assets until absolutely necessary.”
“I may be naïve and/or overly optimistic, but I don’t think the new provisions will open the flood gates leading to an abundance of participants taking money from their 401k. I think for those who have no other options, it certainly could end up being their solution.”
One reader commented, “Ha! So you want us to be forecasters?!! They are not usually right, you know!! :)”
“Depends on what industries your clients are in. Some are hit much harder than others,” said another reader.
“I’m cautiously optimistic that some of our plans will not even have changes from last year (maybe about 10%), but know that others will see distributions double in all likelihood. But overall, I think they will only be up by 25%-30% by December 31, 2020.”
“I do not think there will be a significant increase in loans or elective distributions, but there will be a significant increase in termination distributions,” commented another.
“It feels like the only money in America is in the retirement plan. When unemployment insurance payments fall short of what a family needs, they will feel that they have no choice but to withdraw from this source of funds. The phone is ringing off the hook.”
“I believe total loans & distributions will be up; but by how much... no idea!”
MORE TAKE-UP COMMENTS ARE AVAILABLE HERE
Other Comments
We got a large number of reader comments beyond the specific responses. Here’s a sampling:
I’m concerned that some ‘smart’ participants will withdraw $100k, invest it outside the 401(k), then think they will return it at the close of the 3 year window. The likelihood of the success of this venture will be questionable. Also, what happens when the employee leaves the employer before the 3 year window and then the employer can’t find them to notify them about the requirement to ‘repay’ using the rollover option? The practical mechanics of the new loan options are being left to the record keeper to implement. I don’t believe we’ve thought through this sufficiently.
I think a lot of plan sponsors were inundated with complicated summaries of the CARES act, this week we’ve spent more time talking about the 401k provisions on a more simple level. It’s been nice to check in with clients on a more personal level. I think they are going to remember that we were there for them on both a personal and a business level when this is all over.
You used the word “ironic” about these provisions. I think it may have been “fear based.” So we work all these years to help people prepare for retirement and then the Act opens the floodgates for using that money now.
This too shall pass.
While I think the intent is in the right place, we have spent the last 10 years plus focusing on retirement readiness and preparing people for retirement and this legislation has the potential to be a major setback to those efforts.
Surprised by the different processes and adoption recordkeepers have taken in response to the CARES Act—it has made for some very interesting conversations.
Provider roll-out was the biggest issue for advisors. Many of the opt-out Providers made it easy on them, but not on sponsors or advisors to assist them. Zero time to discuss and make decisions as many of these sponsors were dealing with business operation and solvency issues.
Sponsors are happy for the provisions around helping participants access their money if needed. There is still a gap on helping sponsors with relief on temporarily suspending safe harbor contributions (if they want to reinstate them later in the year and still get the exemption), and other administrative tasks.
Waiting for Congress to act on revision to safe harbor contribution without requiring a plan amendment.
I think mental health breaks will become more & more important.
We need guidance! And, how hard would it have been to give the EXACT dates for the loan and coronavirus-related distributions?!!!
We still believe the “relief” intended by the CARES Act with respect to employer sponsored retirement plans is a mistake. With the exception of the waiver for RMDs, these options are not in the best interest of the plan participants.
I wish Congress had thought more about future consequences of workers raiding their retirement accounts. It’s the wrong solution to a problem the people still don’t understand.
We are all under more stress...
We’ve gotten bombarded almost overnight regarding the CARES Act wanting immediate response/processing of requests when no process, procedures or a formal review of the CARES Act had yet to take place. Pure insanity.
Think it was too much too soon. The loan deferment is a nice option especially for people who are working but may have hours reduced but not by a significant amount. This brings to light how unprepared the average employee was with no six month “bank” in case of emergency. Communication from platforms was horrible on the TPA side as they don’t know the clients like the TPA would and they handling the communication more for the bundled side of their business. It’s like a broken fire hose....
It has been heartening to see how collaborative the industry has been. Rather than seek a competitive advantage, we have shared tactics freely with each other to ensure our Plans and participants are cared for. There is a sense of a collective mission. I’m also seeing the same questions arise which only the IRS can answer. Acknowledging that they are in the same bind we all are—much to do and little time—I would like to see more transparency and urgency from that quarter.
Year end and 2020 will be difficult. It will be hard to sort out all of the year-end reporting, testing, and plan operation for employers.
We appreciate the help and efforts of our partners and especially NAPA and ASPPA. Thank you.
I hope this is a once in a lifetime event and don’t ever want to go through this again.
I think all of the recordkeepers and TPAs have done a great job communicating to the plan sponsors.
Is it over yet?
I think that many plan sponsors will regret having fully adopted the CARES Act distribution provisions...
Plan sponsors are challenged by their vendors asking them to make really fast decisions—they’d prefer to have more time to think through what they’re doing with the distributions and loans. They very much prefer the vendors who are doing “opt in” to those that are going to automatically make changes unless you “opt out.”
When will this madness end! :0)
Comments from a plan sponsor: Regardless of all the help the media says the government is giving, the only one keeping us alive is the few people I have on staff and whatever I have left in my personal bank accounts. It’s been a long road and we have an even longer one ahead of us. We can only kick the can down the road so much but I still believe at some point things will work out for us. We have worked too hard to have it end like this.
ADDITIONAL COMMENTS ARE AVAILABLE HERE
Thanks to everyone who participated in our weekly NAPA-Net Reader Poll! So many wonderful comments and insights—you’ll find more at the links above.
We also asked readers to share the questions they’re being most asked by plan sponsors and participants—we’ll share those next week!
Thanks again for all you’re doing to help at this critical time!
