Plan Sponsors Ask – Q3 2020

Q: Our small company has, of course, suffered due to the Coronavirus. A few employees who had to take pay cuts are considering applying early for their Social Security benefits, rather than continuing to work at reduced pay. Where can we point them for information about this decision?

A: has the most up-to-date, accurate and complete information available on the subject of Social Security. There, people can obtain a statement of how much to expect when they begin receiving payments. Whether or not to begin payments is an important decision with lifetime implications, and it is important for those employees to understand that. Taking benefits early will mean a lifelong reduction in monthly payments. Yet, when the economy takes a downturn, the first inclination of people who are eligible may be to start their benefits early; according to the Center for Retirement Research, about 42% of people who were 62 in 2009 — 1 year after the stock market drop in 2008 — signed up for their benefits. That was a nearly 5% increase over the prior year. An April 9, 2020, post on the Squared Away Blog from the Center for Retirement Research at Boston College ( reminds readers of the considerable financial cost of starting Social Security benefits early.

Q: Participants seem to need help figuring out the best approach to take with their 401(k) plan investments. How can we help them?

A: Many employers share your concerns, because financial decisions today will undoubtedly have considerable impact on future retirements. Your desire to help is commendable. But it’s important that you know the difference between providing financial education and financial advice, and that your service provider does, too. Generally speaking, you or your service providers can provide investment education without fear of triggering a prohibited transaction — an event with serious plan qualification implications. Such education is general in nature. For example, you can explain asset allocation, diversification, and dollar-cost averaging. Investment advice is more specific to an individual. Avoid telling a participant what they “should” invest in, even if it’s something you personally do. For more information about this important topic, read the article, “The Difference Between Investment Education and Advice,” from Financial Finesse and published on

Diversification may not protect against market risk. Dollar cost averaging does not guarantee a profit or protect against market loss. This approach relies on an investor’s willingness and financial ability to continue making regular investments in both up and down markets.

Q: We were considering doing a re-enrollment in our 401(k) plan before the pandemic hit. Should we go ahead this fall as planned, or wait until next year?

A: Sadly, our crystal ball isn’t working so we don’t know for sure what challenges may lie ahead. But the fundamental reason to do an investment re-enrollment has not really changed: some participants may be keeping their account balance in a fund that is ultraconservative or even in cash or an equivalent fund. They are therefore not able to benefit from a target date fund or your other carefully-selected qualified default investment account (QDIA). Re-enrollment may actually provide some fiduciary protection, because these cash or ultraconservative fund investors may suffer in the long run from low returns. By re-enrolling, you can move them into the QDIA, giving them the opportunity to affirmatively opt out if they so choose. Most probably won’t. When you do decide to go forward with the re-enrollment, be sure to communicate with participants to let them know why you are re-enrolling, and that they do have the opportunity to choose not to change investments.

Pension Plan Limitations for 2020

  • 401(k) Maximum Elective Deferral (*$26,000 for those age 50 or older, if plan permits): $19,500*
  • Defined Contribution Maximum Annual Addition: $57,000
  • Highly Compensated Employee Threshold: $130,000
  • Annual Compensation Limit: $285,000

Stay Healthy & Stay the Course,
Your Advisors & the Team at OSC

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