COVID-19 considerations for 401(k) plan fiduciaries
With COVID-19 creating business disruptions and market volatility, many plan fiduciaries have been dealing with difficult decisions about their 401(k) plans. Some have been charged with implementing cost-saving measures, such as suspending safe harbor contributions, while many have felt compelled to add the CARES Act’s retirement plan provisions—coronavirus-related distributions (CRDs) and relaxed loan rules—to provide relief for affected participants. As you make the necessary adjustments to your plan, these five steps can help you follow a prudent process.
The COVID-19 pandemic has presented a unique set of challenges for plan fiduciaries. Despite the chaos and uncertainty caused by COVID-19, however, plan fiduciaries should not expect audit relief from the IRS or U.S. Department of Labor (DOL), nor should they expect relief from litigation risk. As a result, plan fiduciaries may want to carefully document all the steps they’ve taken and all the decisions they’ve made in the face of the COVID-19 pandemic.
Your fiduciary responsibility remains the same, even during COVID-19
Among the many responsibilities imposed under ERISA, plan fiduciaries are required to act with “care, skill, prudence and diligence under the circumstances then prevailing.” Given this standard, plan fiduciaries must consider the ramifications of the COVID-19 pandemic in order to establish the appropriate course of action for their 401(k) plan. Those plan fiduciaries who do not adjust their plan governance to the COVID-19 pandemic will probably subject themselves to heightened scrutiny from participants and/or regulators. Thus, plan fiduciaries will be better positioned in litigation or a DOL investigation if they can produce meeting minutes that show how they considered the impact of COVID-19 on plan participants and made decisions based on these discussions.
Five steps 401(k) plan fiduciaries can take
Plan fiduciaries may want to consider the following action steps in response to the COVID-19 crisis:
- Continue to hold plan committee meetings and engage in an appropriate level of plan oversight. This means plan fiduciaries will need to adjust their standard procedures and meet through virtual means or by telephone. In addition, committees may need to schedule more frequent meetings, if necessary, during this time of disruption and volatility.
- Reach out to the plan’s service providers to verify the provider’s ability to handle and adjust to the challenges presented by COVID-19. This can include questions about operational disruption, such as how the provider is operating during home confinement periods, and whether there will be delays in plan reporting.
- Review the plan’s investment lineup to consider whether each investment option remains a prudent investment in the current market environment. In addition, it may be the right time to revisit the plan’s investment policy statement to determine whether plan investment guidelines remain appropriate.
- Provide participant communication that’s meaningful and helpful given the circumstances. For example, if the markets remain volatile, plan participants may benefit from a communication that speaks to the “importance of diversification” or the “risk and reward” associated with the various asset classes represented in the plan.
- Prepare for potential litigation and/or investigation. As mentioned earlier, plan fiduciaries should preserve a record of their due diligence. Questions to consider and answer in advance of any potential proceedings include:
- Did you amend your plan documents for employer contribution suspension or elimination in a timely manner?
- Did your plan experience a partial plan termination due to a workforce reduction?
- Did your plan compensation definition change as a result of the Families First Coronavirus Response Act?
- Did you adopt the CARES Act’s CRD provision?
- Did you implement the CARES Act’s relaxed loan limits?
- Did you allow loan suspensions?
- How did you handle 2020 required minimum distributions?
- If plan or investment changes were made, did you provide all required notices to plan participants?
- Did you amend your plan for all CARES Act provisions that you adopted? Note: Given the amendment deadline is December 31, 2022, this would be a future consideration.
Your fiduciary duty is the constant amid all the change
The pandemic continues to present challenges to your business, but your fiduciary responsibility remains the same. Amid the disruption, make sure your committee is staying in touch, and check in with your service providers on their operations. Review your investment lineup and participant communications to be sure they reflect the current needs. Whatever you do and whatever decisions you make, document them. Your fiduciary duty is one thing that, amid all the change, stays the same.
Important disclosures
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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