Will your Employee Benefit Plan be affected by COVID-19? During the pandemic, some companies are experiencing reduced revenues, increased costs, and concerns over whether they can continue to be profitable. As a result, some businesses might find that their Employee Benefit Plans, such as 401(k)s, could use some tweaking. Kathy Flattmann discusses key COVID-19 implications to consider regarding your Plan, as well as what the Sponsors of those plans need to know before making changes.
Due to unique federal and state financial assistance during the pandemic, some businesses might decide to change the way employees are being compensated. Compensation may include pay under the Families First Coronavirus Response Act or the enhanced Family Medical Leave Act. Plan Sponsors will need to refer to their Plan documents to determine that deferrals are being calculated using a correct definition of compensation.
Employer Matching Contributions
In order to save on costs, some Plan Sponsors might choose to reduce or eliminate employer contributions. Plan Sponsors should review Plan documents to determine if a Plan amendment with the Plan Administrator is necessary. Plan participants may also need to be notified.
Regarding Safe Harbor Plans, under the SECURE Act for Plans beginning after December 31, 2019, the safe harbor notice requirement for nonelective contributions is eliminated.
Reduced staffing might result in a partial plan terminations and/or eliminating the audit need. A reduced workforce of 20% or more may result in a partial termination of the Plan. Employees that have been furloughed may count; however, routine turnover or employees that voluntarily quit should not be counted. If there is a partial plan termination, then all affected participants will become fully vested in their accounts. Plan sponsors should monitor turnover rates to ensure they are not experiencing a partial plan termination.
If a reduced workforce due to layoffs or terminations results in less than 100 eligible participants, this may eliminate the need for audited financial statements to be attached to the 5500. The Plan determines the number of eligible participants on the first day of the Plan year, so Sponsors should check their documents to determine eligibility and to see if an audit is required.
** To discuss 401(k) audits, COVID-19 implications for your employee benefit plan, or any other audit needs, please contact us.