IslerDare is a legal firm dedicated exclusively to the representation of management in all aspects of labor, employment and employee benefits law. We frequently share their insights here on the Deferred Compensation Blog, and are pleased to provide you this link to their timely newsletter, “The Impact of the COVID-19 Pandemic on Your Medical and Retirement Plans,” and the excerpt featured below, which specifically addresses current IRS positions on issues that could result from the COVID-19 Pandemic.
Hardship distributions from tax-qualified retirement plans, such as 401(k) plans and 403(b) plans, typically can only be made if they are for expenses for certain limited purposes (e.g., medical expenses, funeral expenses, amounts needed to prevent foreclosure or eviction, and certain tuition payments), which cannot be satisfied from any other sources. At this time, the IRS has not issued any guidance relaxing these rules to the extent that a participant experiences some financial strain as a result of the COVID-19 pandemic, but does not otherwise qualify for a hardship distribution.
Company contributions to retirement plans:
Employers looking to ease the cash flow crunch of continuing to pay employees who are on extended leaves of absence for quarantine or other COVID-19 related reasons may wish to consider adjusting the level of company contributions, such as matching or nonelective profit sharing contributions, to their retirement plans. This typically requires a formal, written plan amendment and a Summary of Material Modifications, unless your plan terms already provide that your contribution level is fully discretionary.
However, if you sponsor a “safe harbor” plan, be aware that there are specific compliance considerations—and advance notice obligations—that are likely to apply if you are interested in implementing a reduction to your safe harbor contributions in the middle of your plan’s fiscal year.
Participant investment education:
Given the extreme market volatility in the last few weeks, your retirement plan participants may be anxious about the security and investment of their retirement funds. Consider reaching out to your plan’s recordkeeper for educational material about investment education on topics such as the importance of diversification, asset allocation, and long-term investment strategies.
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC.