COVID-19: Answers to Key Questions for Retirement Plan Sponsors

With the impact of COVID-19 disrupting the flow of business and personal lives, organizational leaders across the country have turned their attention to protecting their companies and navigating new legislation aimed to ease the economic effects of the virus.

What steps can you consider during this crisis? Here are answers to some of the top questions plan sponsors1 ask about their organization’s retirement plan(s), as well as details of the Coronavirus Aid, Relief and Economic Security (CARES) Act2 and key actions to consider taking now.

Can Employers Reduce or Eliminate Plan Contributions?

Yes, employers can generally amend their plans to reduce or eliminate matching, safe harbor or other employer contributions mid-year on a prospective basis, subject to certain requirements.

For safe harbor plans, the ability to stop or reduce contributions mid-year may be restricted or special rules may apply. Safe harbor plans can suspend or reduce employer contributions if the safe harbor notice previously distributed to participants outlined this provision, or if the employer is operating at an economic loss for the plan year.

For plans without a safe harbor formula, there may be flexibility to reduce or eliminate an employer match or a non-elective contribution. Plan sponsors should review their plan document to determine if there are restrictions on amending the benefit.

It is important to note that each plan is unique and you should consult with your tax or legal advisor or third-party administrator (TPA) regarding any potential plan changes.

If it is Becoming Difficult to Maintain a Plan, are There Other Alternatives to Termination?

If you are considering terminating your plan–which can create more work and stress for you–you may want to first consider the possibility of freezing your plan. While frozen, there are no plan contributions made or accrued and no new employees are eligible to participate.

You will need to notify employees that the plan is frozen, but the advantage to this strategy is you can reopen the plan in the future.

What Should an Employer Consider When Addressing the Loan and Early Withdrawals Provisions of the CARES Act?

In normal times, a plan sponsor would not typically make it easier for participants to take withdrawals or loans from their retirement savings. But these are not normal times, and exceptions may need to be made.

Under the CARES Act, you can choose to temporarily relax distribution provisions to allow plan participants to take early withdrawals and/or higher loan amounts from their retirement plan assets. With industries and individual companies experiencing the impact of the pandemic crisis differently, you may want to assess what is best for your particular situation.

If you are considering making these CARES Act provisions available, you must first determine if your plan permits loans or distributions while people are still employed, or both. If these provisions are not written in your plan – and you decide to make them available – you will need to update your plan document. The plan amendment deadline for adopting any of the relief provided under the CARES Act would be no earlier than the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024 for governmental plans). 

How Can Employers Educate and Inform Participants During This Difficult Time?

During this difficult time, your participants may be reaching out to you for help regarding their retirement plan decisions. While you can provide them with investment education, be careful not to give investment advice, as this may result in unintended fiduciary liability for you and your organization. In addition, consider sending special communications to appropriate groups of employees based on a common theme or career stage.

To help you provide education about navigating personal finances during the COVID-19 crisis, you can visit Morgan Stanley’s resource and education site3. In our resource hub, you will find helpful information such as:

  • Managing finances in turbulent times
  • Adjusting your budget to your new normal
  • Steps you can take to defend your portfolio

You can also refer your employees to our webinar, Managing your finances in turbulent times4, which covers topics like setting up a budget and saving for retirement during the pandemic.

We Are All in This Together

During these challenging and unprecedented times, a Morgan Stanley at Work Financial Advisor can help you understand the options available to your organization and assist you in determining a course of action for your retirement plan.

You should also discuss any considered amendments and any potential changes to your retirement plan with your legal and tax advisors to determine what steps you must take before making any changes.

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1 Morgan Stanley white paper,  “Coronavirus Aid, Relief and Economic Security Act: Key Provisions for Individuals and Businesses:”

2 Coronavirus Aid, Relief and Economic Security (CARES) Act:  

3 Morgan Stanley COVID-19 Personal Finance Resource Hub:

4 Morgan Stanley Webinar, “Managing Your Finances in Turbulent Times”


This article is for informational and educational purposes only. The article does not take into account your personal circumstances and Morgan Stanley does not represent that this information is complete or applicable to your situation. The information and data contained in this report are from sources considered reliable, but their accuracy and completeness is not guaranteed.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at . Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

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