As a business owner or executive, you are most likely the fiduciary of your company’s retirement plan. As the plan’s fiduciary, you are responsible and liable for oversight of the plan’s administration, investments and fees.
These are trying times for all of us, as the COVID-19 virus outbreak has and will continue to disrupt the lives of every American and American business. As companies navigate how to move forward in this time of crisis, a small part in potential flexibility and opportunity could revolve around the company’s retirement plan.
The following are five points to consider or remember as you look to build a plan coming out of the crisis:
Point #1 | Employer Contributions Due Date
Employer retirement contributions (profit sharing, match, safe harbor) may not have to be deposited until the business’s tax return is due plus extensions, potentially 9/15/2020 or later. This could be a way to free up cash flow in the short term.
Point #2 | Furloughed Employees
If the business plan calls to furlough employees for a period of time, they are not eligible to receive a distribution from the retirement plan, as they are not terminated. However, if more than 20% of the workforce is furloughed, the plan could be classified as partially terminated, which could result in those furloughed employees becoming 100% vested in their employee contributions.
Point #3 | Suspending Employer Contributions
Plans that have discretionary matching and/or profit sharing contribution can suspend these contributions at any time. Again, this could free up cash flow in the short term to be allocated for more immediate needs. If your plan is a safe harbor plan, those contributions may be suspended, as well.
Point #4 | Plan Design Flexibility
The design of corporate retirement plans are flexible and can be modified when the goals of the company change. For example, when the employment market is tight and it’s hard to hire employees, the eligibility for the plan may need to be short, such as three (3) months. However, when it is easier to find qualified employees, eligibility could be longer for entry, such as six (6) months, keeping employer match costs down.
Point #5 | Plan Fees
The Department of Labor allows for plan fees (such as advisor, record keeping, auditing) to be paid by the plan, so long as those fees are reasonable. This is another way that money can be saved by the company and reallocated elsewhere. However, making sure the fees are reasonable is critically important. We recommend having the plan benchmarked prior to making the switch, rather than having the fees paid by the plan.
With these unprecedented times, remember that the corporate retirement plan plays an important part in the business strategy. Should you have specific questions, require additional information or for specific plan benchmarking, please feel free to contact Todd Hughes, J.D. by email Todd.Hughes@centraltrust.net.