Cares Act Distribution a BRF as far as protected benefits are concerned?

[Purplemandinga]

If an employer allows participants to take a Cares Act distribution during early 2020, but say later in October of 2020 decides to no longer allow them would this be a violation of protected benefits? My reasoning stems from participants who were previously allowed to take a distribution due to a particular event are no longer able to do so through the current statutory period that allows such a distribution to take place.

[Luke Bailey]

Purplemandinga, I think that's a good question. The issue does not seem to have been addressed one way or the other in the CARES Act. Safest thing to do, of course, would be to just leave it in through the end of the year, if you decide to put it in. Why take it out once it's in?

[Larry Starr]

On 7/7/2020 at 10:45 AM, Purplemandinga said:

If an employer allows participants to take a Cares Act distribution during early 2020, but say later in October of 2020 decides to no longer allow them would this be a violation of protected benefits? My reasoning stems from participants who were previously allowed to take a distribution due to a particular event are no longer able to do so through the current statutory period that allows such a distribution to take place.

While we don't have specific guidance, and I agree that it makes not much sense to put it in just to limit its time period, I don't think it's a protected 411(d)(6) protected benefit.  I do think it can be discriminatory if HCEs used it in the early time period and then you shut it off.  BTW, as of today, we have not had one client who desired to add CRD options to their plan.

[Purplemandinga]

Luke, I'm not entirely certain of the reasoning, but I agree I think its better to just allow the distributions until year end.

Larry, your experience is similar to our book of business. 

[Belgarath]

We also have had very few requests for CRD's. I do have some expectation that perhaps Congress is going to end up extending the timeframe for CRD's, given what is happening with the new surge, which shows little sign of abating any time soon. If things remain bad, then I think that many folks who have thus far managed to hang on by their teeth and toenails, may be forced to dig into the retirement savings. 

[Luke Bailey]

4 hours ago, Belgarath said:

We also have had very few requests for CRD's. I do have some expectation that perhaps Congress is going to end up extending the timeframe for CRD's, given what is happening with the new surge, which shows little sign of abating any time soon. If things remain bad, then I think that many folks who have thus far managed to hang on by their teeth and toenails, may be forced to dig into the retirement savings. 

I completely agree, Belgarath! Maybe a miracle will happen, but if it doesn't, at some point Congress will be unable to throw more of the federal government's money (or, really, credit) at the problem and the private sector, and even state and local government DC and 457(b) plans, will be nudged to make sure CRDs are communicated and made available to participants.

[Riley Britton]

On 7/7/2020 at 5:30 PM, Larry Starr said:

While we don't have specific guidance, and I agree that it makes not much sense to put it in just to limit its time period, I don't think it's a protected 411(d)(6) protected benefit.  I do think it can be discriminatory if HCEs used it in the early time period and then you shut it off.  BTW, as of today, we have not had one client who desired to add CRD options to their plan.

I think that's because you are in New England, a wealthy area. All our clients opted to add CRD options and I see no issue with that. 

[Larry Starr]

8 hours ago, Riley Britton said:

I think that's because you are in New England, a wealthy area. All our clients opted to add CRD options and I see no issue with that. 

Sorry, but that's just not the reason.  I have no issue with clients adding the option, but upon explanation of what it means, they just prefer not to.  I could SELL every one of them on the "need" to do it, but that's not the way we work.  If ALL of your clients opted to do it, then it's very hard to believe each and every one of them made a considered choice; maybe they did, but EVERY client elected it?  I'm guessing there was some "salesmanship" involved. FWIW.

[RatherBeGolfing]

On 7/9/2020 at 8:19 AM, Riley Britton said:

I think that's because you are in New England, a wealthy area. All our clients opted to add CRD options and I see no issue with that. 

All???  That is not the norm for sure.  informal surveys and distribution statistics have shown that CRD/CRL adoption have been lower than expected, and leakage has been surprisingly low.  Im in Florida.  I have clients in the biggest cities of the state and in the most rural areas of the state.  We have had a handful of adopters, thats it.

[Riley Britton]

2 hours ago, RatherBeGolfing said:

All???  That is not the norm for sure.  informal surveys and distribution statistics have shown that CRD/CRL adoption have been lower than expected, and leakage has been surprisingly low.  Im in Florida.  I have clients in the biggest cities of the state and in the most rural areas of the state.  We have had a handful of adopters, thats it.

Yep, all!   The TPA I work for is in NJ with clients in Philly and NYC.  We've had several participants take advantage of the distributions.