Courtesy of Clark Schaefer Hackett

Many employers are being impacted by COVID-19. 

Some have voluntarily shut down or limited operations, while others have been mandated to close by the states where the reside. 

While things are changing rapidly, employers sponsoring 401(k) plans and defined benefit plans should consider the following issues:

• Don’t change or alter a plan participants salary deferral contribution election without a newly executed election form. A participant has the right to cease contributions at any time (please refer to your plan document). The plan sponsor must have written participant direction to cease or change salary deferral contributions.

• Plan sponsors need to continue to make salary deferral contributions on a timely basis to the plan trust. Late contributions will require the calculation of lost earnings for impacted plan participants and the plan sponsor is subject to a 15% excise tax on the lost earnings.
  
  
• Laid off employees, those who are expected to come back to work at some point in the future, are not eligible for distribution under the plan. Employees terminated and not expected to be rehired may take distribution of their vested account balance after the separation occurs (please refer to the plan document for distribution timing).
  
  
• Employers sponsoring an automatic enrollment plan must continue to withhold at default rates for active participants. Plans must be amended and notices must be distributed to eligible participants to stop automatic enrollment features.
  
  
• Loan payments should continue to be withheld for participants with outstanding loans.
  
  
• Mandatory safe harbor matching contributions can only be stopped with a plan amendment and a notice to eligible plan participants. Employees must also be given the opportunity to change their salary deferral election.
  
  
• Plans with a discretionary matching contribution may cease future matching contributions. Written notice to employees is highly recommended. Employees must also be given the opportunity to change their salary deferral election.
  
  
• Financial hardship withdrawal options: At this time there has been no changes to the financial hardship withdrawal provisions regarding COVID 19. Current taxation and rules apply, although many expect discussion regarding the IRS waiving the 10% early withdrawal penalty on hardship withdrawals during the COVID-19 time period. As of the date of this guidance we can make no assurance to any such waiver.

• Plan sponsors may feel the need to freeze the accrual of additional benefits under the plan until economic conditions improve. 
  
  
• Plans must be amended to freeze benefit accruals before eligible plan participants earn a benefit under the plan in the current year. Most plans require 1,000 hours of service to accrue a benefit. Some require as little as 500 hours or less. 
  
  
• Plan participants must receive a notice regarding the freeze at least 15 days prior to the date benefits accrue under the plan.

Plan sponsors to are encouraged to contact their plan service provider or QPAC with questions about plan sponsorship.