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QOTW: QBADs
Last week we asked plan sponsors if they have adopted the optional provision in the Secure Act that allows in-service withdrawals within 1 year of a birth or adoption of a dependent child. The provision allows for up to $5,000 per parent per child and waives the early withdrawal penalty.
Though the responses varied from “yes, why not” to “no, not necessary” and everything in between, 80 precent of plan sponsors have not yet adopted this provision – however, more than 20 percent are considering it.
Response Percentage of Respondents
Yes 20.0%
No 58.5%
Not Yet, Considering 21.5%
The argument can be made that this provision is not necessary if participants have access to retirement funds when needed through other means (loans, etc.), or that this use of funds is outside the role of retirement plans. On the other hand, if it helps participants with adoption ($$$) or unexpected child-related costs within that first year, it is likely to help keep participants in the plan and saving for retirement in the long run. ICYMI readers made both arguments in the comments listed below. There doesn’t seem to be a right or wrong answer here and needs of your specific employee population may sway your choice in one direction or another, but it seems that for now, most sponsors are holding tight on this one, keeping the money in the plan and waiting to see if this becomes a common plan feature in the industry.
Comments from those that have adopted the provision:
• Decided that adopting all SECURE Act provisions would be simpler and clearer to Participants and Plan administration selectively picking provisions.
• Provides an opportunity for additional funds, considering the event. Allowing this small $ amount benefit via 401(k) is good.
• Pushed on us by our TPA. Probably a prudent thing to do. No participant has even asked about it. Our business was not hard hit by Covid.
• The provision will help our participants with their families.
• To allow employees access to funds if they need if for this reason.
• To give participants option should they want it as allowed under regulations.
• To support participants with their financial needs during the pandemic.
• We considered it to be an extra feature/option for the plan at no cost.
• We have had requests for some type of help with adoption for several years.
• we thought it was a good benefit for our employees
• Why not? We believe that if an employee needs assistance and this could help, it keeps them in the plan, helps them out financially, and allows future repayment.
Comments from those that have not adopted the provision:
• Concerned about additional leakage. Participants have other options, such as a loan.
• Did not know it was an option, but doubtful we would approve it anyway.
• Do not feel the need to provide this withdrawal opportunity.
• Have not considered it as a benefit to participants
• Have not even posed the question to the retirement planning committee. Will review further details with advisor.
• No expression of any interest
• Not deemed to be necessary. We have other in-service withdrawals available.
• Not interested in encouraging employees to take money out of their retirement plan for family planning purposes
• Not interested in expanding in-service withdrawals – focused on retirement savings.
• Our plan does not allow for in-service withdrawals.
• Our plan has other opportunities to take distributions if needed. We have also not received any participant feedback requesting the need for this distribution event.
• The purpose of a retirement plan is to save for your future retirement. If we keep giving employees more reasons to withdraw from their 401(k), they'll eventually have nothing saved for retirement.
• Too complex at this point for RK to administer in an automated fashion.
• Unaware... and just did a plan transition and have upcoming mergers and such, lots going on!
• We are concerned about increasing the probability that employees will impinge on their retirement savings for other purposes and undermine their long-term financial security.
• We did not feel it was needed, we have an older employee population
• We don't allow hardship withdrawals at all.
• We have not had any requests from participants for it, but we are also concerned with allowing in-service withdrawals when not required. We prefer participants build their retirement fund and not rely on it for current expenses.
• We offer other financial assistance options for birth/adoption to our employees.
• We prefer to stay away from allowing participants to withdrawal funds and instead keep their funds for retirement.
• We took a "protective" view of not allowing additional access to the retirement plan as we did not layoff, furlough or terminate any employees as a result of COVID.
• We try to keep people's money in their account.
• We will likely adopt it if it becomes prevalent in the market, but until then we will limit how many types of withdrawals are available as the retirement plan is intended to be invested for retirement, not short term needs. We do offer loans, and while the funds are outside of the plan for a period of time, at least there is an understanding that they will be paid back to be used for retirement (whether they actually are or not is another matter).
• We've not had any employees request such a benefit.
Comments from those that said “not yet, but considering”:
• Just unsure.
• Lack of clear guidance.
• These distributions are able to be paid back into the plan, and we are considering what that might look like - including the timing of such receivables, which doesn't seem to be well-defined quite yet.
• Want to see what other companies are doing
• We are considering the need for it since the plan also has loan provisions that will help the participant get money and pay themselves back. Thus, securing retirement benefits for the future.
• We've recently changed payroll systems and our time has been consumed with that. We're going through a recordkeeper RFP though and will revisit plan amendments once we've made a decision.
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