What’s the Current Impact of Covid-19 on Retirement Plans and Benefits So Far?

It’s no secret that Covid-19 has affected everyone and everything, and we’ve been keeping tabs specifically on the impact it has had so far on retirement plans. Without boring you to tears with all the statistics, we have cherry-picked data points from some of our retirement plan recordkeeper partners to demonstrate the current state.

First, here’s some background information. Congress moved quickly to pass the CARES Act in late March to provide much needed assistance to businesses. It allows plan participants negatively impacted by COVID-19 to take distributions and loans from their employer sponsored retirement plan. Loans have a $100,000 limit, and the payments can be deferred for up to a year. The distributions can be up to $100,000, and the usual 10% penalty doesn’t apply. Taxes do apply, but they can be paid over a 3-year period. And, in an unusual move, the distributions are allowed to be paid back into the plan.

Question 1: Are plan sponsors adding these provisions to the plan for the employees to use?

Our concern was that some recordkeepers opted plans into the provisions, others out, there were deadlines for implementing, and plan committees were still trying to figure out how to work from home. This didn’t leave a lot of room for contemplating fiduciary decisions. We cautioned our clients to move slowly and procedurally; this is retirement money we’re talking about.

Answer: It’s a mixed bag. Not every plan sponsor added the provisions, although they can be added any time until the end of the year. There is evidence to suggest that the opt-in or opt-out default and deadlines that recordkeepers imposed also had an impact. Those who added the provisions if actions were not taken had higher numbers.

Our clients: 59.5% (we’ll round to 60%) opted in. If the plan did not have loans, they did not adopt that provision. The other 40% chose not to, or to wait and see how things unfold. They’ll add the provisions if it seems prudent to do so but were torn on whether that was in the best interest of participants at the moment. Recordkeeper data showed similar outcomes taking place.

Principal Financial Group: Approximately 49% of plan sponsors have responded to the CARES Act communication, and 95% of those did implement the provisions.

T Rowe Price: 50% of plans with assets greater than $25m have adopted at least one CARES Act provision

Empower: Most employer have adopted CARES Act Provisions:

• 77% of nonprofits

• 85% of small corporate employers

• 69% large corporate employers

• 63% mega corporate employers

• 70% of government employers

Question 2: Of those employees that have access to CARES Act loans and distributions, are they taking them?

Our concerns lie with the $100,000 maximum on these loans and distributions. Should someone take the maximum loan, amortized over 5 years with a 3.75% interest rate, that results in a monthly payment of $1,830.39! And then they can defer paying for a year. We hope that participants do NOT take a maximum loan without significant consideration of what that will mean to their budget (and they don’t forget during that year they defer). Further, taking $100,000 out of a retirement account makes a significant dent in the years of income that someone will have in retirement, not to mention the tax burden that will come along with the distribution now.

Answer: Yes, they are taking CARES Act loans and distributions, but most of the data points to the employees taking these belonging to the hardest hit industries, including hospitality, health care, and manufacturing.

Our clients: Overall, our clients have not seen prevalent usage of these options by employees beyond what happens with loans and hardship distributions in normal times. Recordkeeper data shows there is some use but it is small.

Fidelity: 1.17% (711,000) of participants have taken a CARES distribution. 18,600 participants have requested the full $100k CARES Act distribution. 36,000 participants have taken a CARES Act loan of $16,200 on average, with $6,600 as the median loan amount.

Health care and manufacturing are the sectors currently most affected. Health care workers represent 17% of CARES Act distributions, with an average distribution of $10.1k and a median of $4k. Manufacturing represents 26.1% of distributions, with an average loan of $13.7k and a median of $5.9k.

Principal: About 1% of plan participants have requested a withdrawal (traditional withdrawal or Covid Related Distribution [CRD]). The size of the average withdrawal is $13,900, about twice as much as a traditional (non-COVID) hardship withdrawal.

T Rowe Price: Travel, hospitality and food service employees have had the highest utilization of CARES Act withdrawals (1.1% of participants have received a CRD).

Empower: 1.4% of eligible participants have received a CARES Act distribution; 4% have taken the $100k maximum (the average is $20k). 33% of those receiving CRDs have taken their full account balance, whereas those making withdrawals have, on average, taken 44% of their account balance.

Conclusion

While the CARES Act retirement plan provisions allow employees another option for helping shore up finances, numbers are indicating that access is not widespread at this point in the pandemic.

Curious as to how this is affecting other benefits? Us to. We asked some of our partners what they are seeing and anticipating.

Common themes include EAP and virtual care, flexibility around work schedules and handling the new WFH (work from home has its own acronym now!) environment with increased employee communication, and deferred payment of insurance premiums.

Here are comments from some of our partners regarding the impact of Covid-19 on retirement plans and benefits:

I have seen multiple groups add on benefits such as an Employee Assistance Program (EAP) or a virtual care service such as Teladoc. I think employers are looking for ways to show their employees they care throughout the pandemic.

Employers have increased their outreach to employees, setting up check-in calls and sending out email blasts related to benefits. Working virtually makes it difficult to feel connected. The weekly or monthly check-ins allow the employer to understand the areas of frustration and improvement.

We have seen clients defer payment on premium and take advantage of the extended grace periods carriers are providing.

While going through renewals, I haven’t seen Covid impact the decision-making process too much (yet). I see this changing as we get into our busy season of January 1st renewals.

I have seen a few acquisitions take place over the past few months which I attribute to the uncertainty Covid has brought business owners.

-- Jessica DuBois, BBG (Business Benefits Group), Fairfax, VA

By and large, clients have not shown signs of slowing down, and they are implementing these items mentioned in order to keep pace, and not lose ground when it comes to talent, morale, etc.

I think that the big concern for many businesses will be staying power. There is a balance for many between overextending in the direction of new benefits during economic uncertainty, but there are a plethora of low/no-cost and common-sense items that employers should be doing now in order to protect the talent they have, in more ways than one.

-- Derek Winn, BBG (Business Benefits Group), Fairfax, VA

We’ve noticed that self-insured clients are doing well because there are no or very few claims due to COVID-19.

--Alex Dampf, Oakmont Benefits, Nashville, TN

I would say we are a few months from knowing the full impact to benefits. At this time, in some instances (but not as to all carriers), we are seeing a rate hold at renewal or a one-time refund of premium / temporary premium holiday. This is attributable to the fact that elective and non-emergency surgeries and tests were delayed.

Because that delays problems, but does not avoid them, we expect an increase in claims experience as society reopens and a pipeline of elective and preventative procedures resume. Often delayed care leads to a future increased cost of care. In addition, we do not yet know the cost of Covid-19 treatment for prolonged hospitalization where government grants may run out and carriers left to cover the losses.

-- Marisa Combs, MyBenefitsChannel, Franklin, TN focusing on the public sector

With small groups, the focus is mostly in flexible work situations needed for the care of family, taking additional time due to stress, ensuring that there is improved communication due to remote work, and enhanced engagement focus. This is all new to everyone and ensuring that people are seeing how their role impacts the job/giving them what they need based on their specific motivators, etc.

-- Dawn Cacciotti, EngageHRnow

What might we have missed? What trends are you seeing? Reach out and let us know.