Loans under the CARES Act

[msmith]

A Plan currently permits loans for hardship necessity only (safe harbor standards). If they are going to permit loans under the CARES Act, will they have to amend their loan program to permit loans for any reason (possibly for the CARES Act duration)?

[ratherbereading]

I believe they will.  I have a few plans who had to add loans so they could utilize the COVID loan feature.

[Mike Preston]

29 minutes ago, ratherbereading said:

I believe they will.  I have a few plans who had to add loans so they could utilize the COVID loan feature.

Agreed.

[C. B. Zeller]

Could the sponsor restrict the availability of loans solely to qualified individuals (within the meaning of the CARES Act)?

[Mike Preston]

1 minute ago, C. B. Zeller said:

Could the sponsor restrict the availability of loans solely to qualified individuals (within the meaning of the CARES Act)?

Certainly

[msmith]

Thanks to all who responded. Here is another CARES Act loan situatation:

The Participant Loan Program that we use (part of the Document package), permits a Plan Sponsor to suspend loan payments for an approved Leave of Absence. I am thinking this could be used instead of the CARES Act suspension. The difference being no extension on the term. Of course, it would be up to the Plan Sponsor to advise us of the LOA's.

Thoughts?

 

[Mike Preston]

If you aren't a labor lawyer I would suggest that telling a client the use of loa is viable is a mistake.

[msmith]

Why is it a mistake? Also, as the TPA, we take direction from the Plan Sponsor. They would be telling us it is a LOA.

[msmith]

From the Plan Document we use:

 

For purposes of this definition, "authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason.

[Mike Preston]

19 minutes ago, msmith said:

Why is it a mistake? Also, as the TPA, we take direction from the Plan Sponsor. They would be telling us it is a LOA.

For those that understand, no explanation is necessary. For those that don't, no explanation is possible. Might I refer the concept to the client's counsel?  Sure. But that suggestion isn't coming from me.

[msmith]

Any constructive advise would certainly be appreciated. Mike - I am not here to be insulted -but to learn and possibly assist othes.

[Mike Preston]

I'm just saying that the first time anybody suggests a course of action to a client that is integral to the employee/employer relationship without making it clear that the course of action should be blessed by client's counsel will usually be their last.  The least they can expect is a strong letter from said counsel.  The real danger is a client that has no relationship with an attorney versed in employee/employer relationships.  That client is quite likely to take your suggestion and run with it without thinking it through.  And while it is not likely to end up in a situation where your E&O gets involved, if you are aware of the risk, why take that risk on when a simple suggestion to run it by the client's legal advisor reduces the risk dramatically?  Sorry you were offended by my remark.

[Luke Bailey]

msmith, first, you don't have to amend your plan until 2022 to implement CARES Act loans and distributions, just adopt a written policy that explains in carefully though-out plain English what you want to do and then do it. We have developed a pretty generic template to make it easy on plan sponsors and decisionmakers who do not already have from their platform vendor. And yes, you can adopt a subset of the maximum permitted under the CARES Act, but why would you want to? It will be easier to administer and roll with the technical advice eventually coming down from the agencies if you just adopt a policy of wanting to do all that the law permits, as interpreted by the agencies from time to time. The only downside to the CARES Act distribution and loan rules is that participants are undermining their long-term retirement savings. But foreclosure, eviction, not paying health insurance premiums, and poor nutrition have long-term economic consequences that could  last into retirement as well.

[msmith]

We have a few Clients that are fee-sensitive to the price of a very inexpensive amendment. We have sent a Questionnaire to all Clients to request what their preferences are to each separate CARES Act provision. Some have answered "no" across for all. I was just thinking that the LOA provision under the current Loan Program would permit participants with current loans to suspend payments.