Jackson Kelly PLLC

Tax Monitor

COVID-19 Impact on Pooled Retirement Plans

April 15, 2020

By: Robert G. Tweel

Business disruptions and market turbulence wrought by COVID-19 have caused many employers to evaluate their qualified retirement plans. This is a prudent step for employers that are named fiduciaries of their plans because the Employee Retirement Income Security Act of 1974 (ERISA) requires fiduciaries to act for the exclusive benefit of plan participants and their beneficiaries, make decisions prudently, diversify plan assets to protect against significant losses, and follow the plan documents.

The following are two considerations that employers sponsoring qualified retirement plans with a pooled investment account, should examine before taking action:

Know about Valuations for Distributions

All participants share in the earnings or losses in plans that utilize pooled investment accounts. Standard practice by many third-party administrators is to pay distributions based on the most recently completed valuation period - which is likely December 31, 2019. Thus, if a participant were to request a loan, hardship withdrawal, or distribution now, the participant taking a distribution would receive their December 31, 2019 balance, and the remaining participants would bear all the loss for 2020.

Plan sponsors have the option to request that the third-party administrator complete an interim valuation on the date of choice. This means that a valuation would be performed from January 1, 2020 through a more current date that coincides with the distribution needs of the participants. This interim valuation would allocate any earnings or losses to all participants of the plan for this period. Therefore, all participants would share in the current earnings or losses prior to the distribution(s) being processed. If the current plan document does not address an interim valuation, it can be amended to do so.

Jackson Kelly’s Employee Benefits Group encourages you to review your plan with us and your financial advisor to consider whether this approach is appropriate for your organization. Considerations include: the amount of the distributions; the performance of the plan since the year-end valuation; and ensuring that distributions for Highly Compensated Employees and Non-Highly Compensated Employees are subject to the same rules.

Know about Fee Savings

Many employers and employees do not realize that they could be overpaying in fees for 401(k) or similar retirement plans. Often the combination of the cost of investment selections, advisor and service fees, and administrative expenses make figuring out how much is paid in fees a difficult and confusing task. Fee disclosures can vary from a very short summary to dozens of pages of disclosure documents. Now is a good time to tackle this issue and possibly save in fees. New offerings by record-keepers providing participant-directed plans can be less expensive alternatives to pooled plans while also providing an increased level of services in support of fiduciary requirements. We are ready to assist you in making this evaluation.

Now is a good time for plan sponsors to explore options. Converting to a recordkeeping platform with a participant-directed plan where all plan participants get their own personal account and investment options, which is different than a self-directed brokerage account, could result in fee reductions ranging from 15% to 30% in plans ranging in asset amounts from $500,000 to $10M. Over 5 years, this translates into savings of $15,000 to $150,000, which potentially provides participants with more investment capital. Index funds, active funds, proprietary and non-proprietary investments vehicles, and share class will also impact cost. We want to enable plan sponsors to compare their options and this includes discussing expense renegotiation. 

We can assist in an analysis, balancing legal and business considerations, to support decisions that benefit you and your participants, and the cheapest option is not always the best. 

Jackson Kelly’s Employee Benefits Group is willing to have the conversations to help you properly navigate the retirement plan landscape as part of our service to our TPA clients and assistance to potential TPA clients.


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