Healthcare workers on the front lines of the COVID-19 crisis are treating patients around the clock to help them recover. As a result, many workers have fallen ill and been forced to quarantine indefinitely, while some have even lost their lives. In the U.S., hospitals, clinics, and other healthcare organizations are adjusting their benefits and compensation policies to support their employees during these uncertain times.
Defined benefit (DB) pension plans have historically been used as an effective human resources (HR) tool, enabling employers to attain desired objectives, such as attraction, retention, and orderly workflow patterns. However, pension plans can also be used as a strategic tool to help mitigate HR challenges during the COVID-19 pandemic.
In this brief, Milliman’s Ryan Rowland outlines several ideas for employers to consider in connection with their DB pension plans as well as caveats to be aware of as you evaluate your organization’s staffing needs during this crisis.
In the midst of the COVID-19 crisis, there are even more challenges to communicating about benefits. Communication budgets have been cut, employees are working remotely, and attention is understandably focused elsewhere.
A plan sponsor may wish to offer coronavirus-related distributions (CRDs) during 2020 from a single-employer defined benefit (DB) plan as well as, or in addition to, a CRD from its defined contribution (DC) plan. Lump-sum payments from a DB plan may be treated as CRDs, similar to withdrawals from DC plan accounts.
If a plan sponsor chooses to offer CRDs from both the DB and DC plans, careful joint plan administration coordination needs to be taken as the total CRDs to an individual cannot exceed $100,000. In this Benefit Alert, Milliman’s Bret Linton, Vicki Mazzie, and Vanessa Vaag explain in more detail coronavirus distributions for DB plans under the CARES Act.
Now that the United States Congress has passed another COVID-19 stimulus bill, attention has shifted to the next phase, which could include legislation directly affecting multiemployer pension plans. Addressing system-wide changes is a difficult undertaking as history has shown that sometimes pension reform measures have the unintended consequence of negatively affecting the defined benefit system. This Multiemployer Alert by Milliman’s Joel Stewart and Yutaro Seki provides a summary of past multiemployer pension funding relief as well as recent proposals.
In the first general survey of defined benefit (DB) pension plan sponsor actions under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Milliman consultants report that, in 40% of their clients’ DB plans, cash contributions that would have been due on April 15, 2020, prior to the CARES Act were deferred. The due date was extended to January 1, 2021, under the CARES Act.
Milliman has written many times about the CARES Act since it was enacted on March 27. However, this is the first evidence of how employers sponsoring these plans have reacted to the new law and the strategic use of cash to finance current workforce obligations compared to long-term financial promises to plan participants during the extraordinary hardships imposed by the COVID-19 pandemic. CARES has given them some statutory relief to better assess ongoing cash commitments to these pension plans.
We acknowledge that some of our clients have other reasons under pension rules that did not require contributions before April 15. Such reasons could be that their plans were at least 100% funded or that prior contributions over the past years in excess of the statutory minimum amounts permitted them to use a “credit balance.”
We plan to follow up with more details as we discuss 2020 funding strategy with plan sponsors.
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