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 Coronavirus Aid, Relief, and Economic Security (CARES) Act.
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.
Essential businesses like the healthcare industry are
experiencing increased staffing needs as a result of the coronavirus pandemic.
One source of trained and experienced professionals being recruited to fill
those needs are former employees who are currently retired.
However, these professionals are less likely to come out of retirement if their monthly pension payments are suspended as required by some pension plans. In order to remove that obstacle, employers should seek to amend their plans to remove or modify this provision for those rehired during the crisis. It would make the road to reemployment smoother for these retirees.
Milliman’s Vicki Mazzie highlights several issues for plan sponsors to consider in her article “Impact of COVID-19 on your pension plan: Rehiring retirees in healthcare and other essential businesses.”
One defined benefit (DB) plan sponsor decided to change how the plan calculated participant benefits from a final average pay formula to a cash balance formula. The change produced two groups of employees with significantly different levels of retirement benefits. Milliman was able to help the sponsor improve the amount of benefits provided to employees as well as give them the ability to receive income in retirement on a flexible basis for employees individual needs. Milliman actuary Vicki Mazzie provides some perspective in this article.