What can employers do to assist workers with student loan debt? According to this PlanSponsor article, some strategies include direct-to-worker payments or an indirect option for student debt repayment benefits. McDermott Partner Jeffrey Holdvogt said a loan consolidation or refinancing option can help workers get a lower interest rate.
“There’s an expectation that many individuals will begin repaying student loans again sometime soon and what should employers be thinking about in terms of student loan benefits [for workers]? There’s a few different buckets of options for employers to provide student loan benefits,” Holdvogt said.
Much has been written about the new CARES Act distribution that allows impacted COVID-19 participants to access up to $100,000 in their tax-qualified defined contribution plan penalty-free and with income taxes spread over three years. However, the CARES Act legislation applies to all “eligible retirement plans” as defined in Code Section 402. So technically the CARES Act also applies to defined benefit plans.
Consider, the following examples.
A cash balance plan permits lump sum distributions to terminated participants. If this cash balance plan decides to add CARES Act distributions, and if its record keeper will administer the provisions, terminated participants who meet the CARES Act conditions can access their funds penalty-free and spread the income tax consequences over three years.
In addition, if a plan will offer a lump sum window during 2020, then participants who qualify under the CARES Act distribution rules could elect a lump sum and use the favorable tax treatment for the applicable portion of the distribution, up to $100,000.
Note that the $100,000 limit applies across all plans, so a participant in both a defined contribution plan and a defined benefit plan will need to ensure that the limit is applied to all plans in which he or she participates.
Given all the difficulties that both employees and retirees are experiencing with COVID-19, a plan sponsor may want to explore all available COVID-19 distributions under the CARES Act, including options for its defined benefit plan with its actuaries, record keepers, and attorneys.
The House recently passed the most significant piece of proposed retirement plan legislation in more than a decade: the SECURE Act. Although the Senate must also approve the bill before it becomes law, its proposed changes have considerable bipartisan support in Congress. Plan sponsors should start considering how changes included in the SECURE Act could impact their retirement plans. Employers who do not currently offer retirement plans should also review the new retirement plan incentives included in the proposed legislation.
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