Plan Professionals Provide Value Amid COVID-19 Impacts

The true impact on retirement plans created by Covid-19 and the CARES Act will not be determined for a while. The time has never been better for qualified plan professionals to demonstrate their expertise and value to plan sponsors and participants.

Retirement plan professionals have a great opportunity to assist their plan sponsors and participants in managing the options created by the CARES Act and to develop effective communication with plan participants to assist them in managing their retirement assets prudently.

Services being provided to a qualified retirement plan should be viewed as a professional service and not a commodity. The value of service plan professional provide is more evident now than ever.

Plan sponsors who have elected to engage service providers based on price rather than service and expertise will not receive the proper guidance in managing the options within the CARES Act. The participants will not receive valuable assistance in managing their retirement plan assets.

Listed below is a brief list of services professional, qualified plan service providers can offer to plan sponsors to assist them and their participants in staying on track meeting their retirement goals.

Document Provisions

• Review the current plan document provisions to determine if they are appropriate to meet the needs of the participants in this crisis.
• Review the provisions of the CARES Act to determine which provisions, if any, will need to be adopted to assist the participants.
• Contact the plan’s recordkeeper and third party administrator, if different, to determine the processes required to complete a transaction if the CARES Act provisions are adopted, and to determine the changes to the plan document to reflect the features adopted.
• Communicate any changes to the participants, along with the process of requesting a transaction.

Plan Investments

• Review the plan’s Investment Policy Statement (IPS) and make sure the processes outlined in the IPS are being followed.  This is important now because fiduciaries might be preoccupied with managing business issues created by the pandemic.
• If the IPS is not consistent with the steps that need to be taken, make sure to amend the document to reflect the change in monitoring procedures.
• If the plan’s investments were selected and monitored in the past based on a prudent process, it is likely that the investments will continue to meet the provisions of the IPS, even though they may have lost a significant part of their value in the market downturn.
• If an investment fails to satisfy the monitoring criteria in the IPS, it may be better to wait until after the markets have stabilized before making a change. However, if the investment continues to fail the IPS criteria, appropriate action should be taken to avoid a fiduciary breach for failing to adhere to the criteria of the IPS.
• Once the markets have stabilized, review the plan’s investments to determine the investments volatility resulting from the Coronavirus pandemic and document how the investments recovered.
• Review the plan’s investments and document they continue to be appropriate based on the demographics of the participants.
• Review the plan’s suite of target date funds and evaluate their level of volatility. For example, are the allocations of the TDFs appropriate for the participants who are approaching retirement? That is, should you offer TDFs that have a more moderate or conservative glide path? How did the target date fund recover, especially the 2020, 2025, and 2030 target dates.  Document this process – there is current litigation involving TD funds – and there will probably be more in the future.
• Review the fixed income alternatives to decide if the plan has an adequate array of fixed income funds so that participants who are seeking to diversify in a more conservative manner have choices.

Plan Participants

•  Monitoring Participant Actions: Obtaining information from the plan’s recordkeeper on changes in participant deferrals or investments in their accounts. Having the information will be helpful in developing communications with the participants. For example, if there have been very few changes, it could be concluded that participants understand that the market downturn may be temporary. But if there have been significant transfers to cash, additional investment education or other communications should be provided to participants.
• Communication with Participants: Consider informing participants the plan’s investments are being monitored, properly diversified, and are appropriate. Encourage participants to stay the course and make informed, not emotional decisions.
• Consider implementing or promoting, if one is already available, a Financial Wellness program and other resources to assist participants in recovering and getting back on track to meeting their retirement saving goals.

By Jeff Atwell, AIF, C(k)P, CPFA , Principal, TRG Fiduciary Services, LLC