CARES Act Loans/Distributions - SMM's Needed?

[austin3515]

So client amends the plan to add all of these wonderful new options.  What are the obligations to tell the participants about the options?  I happen to think we should be telling them about the options proactively.  Perhaps that is based on more on ethics than law though.  What is the law?  

[Belgarath]

I think under 2520.104b-3(a), the REQUIREMENT is no later than 210 days AFTER the close of the Plan Year IN WHICH the modification or change was adopted. Now, I've seen some interpretations that the change isn't "adopted" until the plan is formally amended, which in situations like this means potentially a long way into the future.

So I think at the very least, you don't need to do it prior to allowing these options.

[Peter Gulia]

Courts have interpreted ERISA § 404(a)’s commands that a fiduciary meet its responsibility loyally and prudently to require a fiduciary in some circumstances to furnish information beyond what the statute specifies (or describes).

 

Those court decisions say a fiduciary must furnish further information that a prudent fiduciary should know the individual needs to protect his or her interests in the plan.

 

Courts have applied that idea to find that a fiduciary was duty-bound to inform a participant about a potential plan amendment an employer had seriously considered.  For example, an employee might need to know that her employer is considering an early-retirement provision (and perhaps the proposal’s essential terms) because the information might matter in her decision-making about whether to quit her job now or wait a few months so as not to lose the opportunity to get the potential early-retirement provision.  If there can be some duty to communicate about a potential provision, there might be no less duty to communicate about an adopted provision.

 

Yet the responsibility courts have found turns on whether a lack of the information affects a person’s opportunity in using her employee-benefit rights.

 

Whether a plan’s fiduciary must (before the SPD/SMM due date) inform all or a class of participants about the coronavirus amendments might turn on how much the fiduciary knows (or how much the fiduciary would know had it used the required care, skill, prudence, and diligence) about how likely it is that some need or want to use the relaxed provisions.

 

Some plans’ fiduciaries find that workers have enough awareness about the possibility that a retirement plan might have coronavirus loans and distributions that it’s okay to wait for a participant’s inquiry about whether the plan falls in with what Congress allows.

 

Even if a plan’s fiduciary is persuaded that it need not advance the information, some find it’s straightforward to furnish the information now, if the plan can do so without incurring an imprudent expense.

[Larry Starr]

3 hours ago, austin3515 said:

So client amends the plan to add all of these wonderful new options.  What are the obligations to tell the participants about the options?  I happen to think we should be telling them about the options proactively.  Perhaps that is based on more on ethics than law though.  What is the law?  

I always do my SMM at the same time as we do an amendment.  The amendment is sent for client signature along with the SMM with instructions to distribute appropriately.  And yes, if we did any of these amendments, we would send the SMM with it. If you are doing it without amendment at this point, I think a letter to the participants explaining their new options is critically important to meet fiduciary requirements. 

[austin3515]

19 minutes ago, Larry Starr said:

If you are doing it without amendment at this point, I think a letter to the participants explaining their new options is critically important to meet fiduciary requirements.

What is the difference really between this and SMM?

[Peter Gulia]

There might be little (or no) difference between a summary of material modifications and some other writing that describes new or changed provisions.

 

Also, if a plan’s sponsor somehow adopts new or changed provisions without amending the plan’s governing document, a written description of the new or changed provisions might be useful evidence to help show the plan was “operated as if [the retroactive] plan or contract amendment were in effect[.]”  CARES Act § 2202(c)(2)(B)(i).

[Bri]

My guess is that document systems spit out an SMM relatively easily.  Letters, not so much.

[Larry Starr]

3 hours ago, austin3515 said:

What is the difference really between this and SMM?

I think until you do an amendment, anything you provide can't be called an SMM. But otherwise, no big difference.

[austin3515]

Relius said theirs will be ready ASAP.  The reality is that clients know there employees are in dire straits and want to let them know what the options are that are now available.  Anyway I guess we are all on the same page on that front.

[AKconsult]

We (the TPA)  have prepared a template of a notice for employers to give to employees if they want it.  But I think a lot of the recordkeepers have notices available for use, too.  Also, keep in mind that if the plan is adding loans where they did not have them before, the participant fee notice must be updated and distributed to employees if there will be any recordkeeper or TPA fees for the loans.  

[Peter Gulia]

If an employer/administrator sent a communication about coronavirus special provisions, such a communication ought to have explained the limited duration of those provisions.

 

Even if it did, are you or your clients doing a follow-up communication to remind people that the special provisions no longer apply?

 

Or is it good enough that the earlier communication explained the limited duration?