Tag Archives: COVID-19

COVID-19: So many questions for employers about their 401(k) plans (pt. 2, updated December 2020)

The year 2020 saw COVID-19 challenges for plan sponsors and participants across the retirement industry. My prior blog asked the following questions: (1) Are 401(k) savings plans facing “partial plan terminations”? (2) What will happen with 401(k) safe harbor plan contributions? (3) Can employer matching contributions be suspended?

This update addresses a change for partial plan terminations.

What about partial plan terminations? Hot off the press, in the $900 billion COVID-19 stimulus package just passed by Congress, partial terminations are addressed.  As a refresher, “partial termination” is a term in the tax code. It means there has been more than a 20% reduction in an employer’s workforce due to unforeseen business circumstances causing financial issues or a business downturn during the year. It results in 100% vesting of retirement benefits for those employees affected, meaning the employees who lost their jobs.

The bill states: A plan shall not be treated as having a partial termination (within the meaning of 411(d) (3) of the Internal Revenue Code of 1986) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80 percent of the number of active participants covered by the plan on March 13, 2020.

What does this mean? Plan sponsors of defined contribution retirement plans—401(k), profit sharing—will not incur a partial plan termination if the active participant count in the plan at March 2021 is 80% of the active participant count at the time the COVID-19 national emergency was declared.

Although the new legislation is for this time period only, it may help alleviate financial difficulties for businesses across all industries. For businesses that have been able to successfully weather the financial downturn, rebuild their business, and hire and rehire more staff, a partial termination worry is not there.

For information on these topics or the Coronavirus Aid, Relief, and Economic Security (CARES) Act related to COVID-19, contact your Milliman consultant.

COVID-19 vaccine considerations for multiemployer plan sponsors

Following the issuance of the emergency use authorization (EUA) by the U.S. Food and Drug Administration (FDA) of the Pfizer-BioNTech and Moderna COVID-19 vaccines, plan sponsors need to consider how to cover the administration of the COVID-19 vaccines for their memberships. 

In addition to vaccine administration coverage, plan sponsors have been faced with other decisions relating to COVID-19 throughout 2020, and have taken various approaches to addressing issues resulting from the pandemic. 

At this point, the expectation is that the federal government will pick up the cost of the vaccine itself for nongovernmental plans. Coverage for the cost of administration of the vaccine will depend on the grandfathered status of the plan.  

In this Multiemployer Alert, Milliman’s Michael HalfordSean Silva, and David Stoddard provide plan administrators with information they should consider as 2020 comes to a close. 

Multinational employers face retirement plan funding challenges amid COVID-19

Defined benefit plan sponsors face a squeeze on funding status from two directions. For one, ongoing and renewed COVID-19 lockdowns worldwide will potentially reduce the value of investments of pension fund assets as stock markets could decline as a result of closed businesses. Second, pension funds aren’t keeping pace with contributions as workers are furloughed and contributions are reduced or delayed. Correspondingly, members of defined contribution plans face similar shortfalls in the funding of their own pension pots. 

While multinational companies face the key question of how far they should go towards helping employees financially, governments worldwide have instituted various programs or measures to provide short-term relief. In this article, Milliman’s Danny Quant provides a global roundup of these measures in various countries. 

Workforce transition consideration for institutions of higher education

COVID-19 has been an inflection point for institutions of higher learning in the United States. Midway through the 2020 semester, campuses shut down, refunded students’ room and board, and made unbudgeted investments in transitioning to virtual environments.

For the 2021 academic year, most institutions are expecting declines in room and board payments, student enrollment, endowment returns, and alumni and donor giving. Public institutions are expecting lower state appropriation funding than they received in 2020. Alongside these projected revenue shortfalls, investments in social decisions need to continue to provide both distance and on-campus education in the fall of 2021.

One of the ways institutions are responding to these financial challenges is to rethink their staffing models and reduce faculty and staff costs. Some are implementing hiring and travel freezes, deferred retirement contributions, salary reductions, furloughs, and freezing of annual merit increases. Some have gone further to eliminate staff positions and terminate faculty contract renewals, or change them to one-year contracts.

In this paper, Milliman’s Radhika Philip explains that workforce transitions need to be conducted with sensitivity and doing so can ultimately strengthen the institution’s reputation with its diverse stakeholders.

Reviewing executive compensation and 409A compliance

The passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as well as general liquidity and business continuity concerns resulting from the financial effects of COVID-19, have created circumstances calling for reductions in executive compensation. However, employers and employees must carefully consider how any reductions are implemented to remain compliant with Internal Revenue Code Section 409A.

In this article, Milliman’s Dominick Pizzano and White & Case’s Henrik Patel and Kenneth Barr review executive compensation issues that should be examined during these turbulent times.

COVID-19 and minimum required contributions for single employer defined benefit plans

The COVID-19 pandemic has precipitated short-term and long-term economic responses that will continue to unfold. In the meantime, employers have many questions regarding Internal Revenue Service (IRS) minimum required contributions (MRCs) for their defined benefit plans.

In this article, Milliman actuary Esther Peterson summarizes the components that feed into the MRC calculation and considers how potential consequences may trickle down into the MRC calculation for future plan years.