team of four workers on video conference call trying to make decision (Photo: Shutterstock)

Retirement plan sponsors appear to be continuing to grapple with the implications of the CARES Act. That’s according to a survey released by the Plan Sponsor Council of America (PSCA) earlier this month.

The PSCA survey looked at how plan sponsors are reacting to the COVID-19 pandemic, specifically the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES). Passed in March, it allows, among other things, the option for participants to withdraw up to $100,000 from retirement accounts like a 401(k).

The PSCA solicited responses from 152 plan sponsors, 44.1% of which indicated that they are still deciding which of the CARES Act provisions they will adopt.

“These employers are dealing with a whole array of issues that have got to be dealt with before you get to the retirement plan, like furloughing individuals, layoffs and filing for small business loans and things like that,” said Nevin Adams, coauthor of the PSCA survey.

Large organizations may be further along in the process than their smaller counterparts. Per the survey, 66% of respondents who identified as working with plans with 5,000 or more participants have already made a decision around which CARES Act provisions to implement. For example, 68.1% of that same demographic indicated that they were allowing distributions of the lesser of 100% of the vested account balance or $100,000 until December 31,2020 and permitting repayment of coronavirus-related distributions during the next three years.

Meanwhile, only 48.3 percent of plans with fewer than 200 participants have made a decision with regards to CARES Act implementation. Among that demographic, the majority are also electing to adopt the provision allowing the repayment of coronavirus-related distributions.

Adams posited that larger plans may simply be in a stronger position to make CARES- related decisions right now having been down that path before during the financial crisis of 2008. For example, 21.7% of plans with more than 5,000 participants and 21.6% of plans with between 1,000 and 4,999 participants are suspending matching employer contributions. Only 3.6% of plans with under 200 participants are doing the same.

“A lot of the larger employers at that point in [2008] had gone about the business of suspending their contributions and so maybe some of that apparatus is in place,” Adams said.

There’s also the possibility that the smaller end of the market contains more Safe Harbor plans, a type of 401(k) that allows employers to forego non-discrimination tests and other annual compliance hurdles. Per Adams, entities who decide to suspend their contribution as a Safe Harbor plan trigger some paper-based notification requirements, which could be difficult to produce with so many employees currently working outside of an office environment. Ultimately, it may not be worth the trouble.

“For a smaller employer in particularly, having to subject your plan to those non-discrimination tests, it might create other problems and it’s something that needs to be thought through,” Adams said.

But since COVID-19’s economic impact varies from state to state, some employers may find themselves under more employee pressure than others to adopt withdrawal provisions under CARES. “With this survey we didn’t try to do any filtering [by geography], but it occurs to me longer term that that might also be a difference that plays out here,” Adams said.

Frank Ready is a reporter on the tech desk at ALM Media. He can be reached at [email protected].