MARCH 26, 2020

The financial stress of the coronavirus pandemic is impacting many businesses and their employees. In this environment, employers in particular may need to review their 401(k) plans and consider the planning opportunities that may be available to them.


Employers that are C corporations will be able to defer making their 2019 plan contributions along with the postponed deadline for filing their federal income tax returns. However, the usual timing rules require the deposit of employee 401(k) contributions and loan payments into a plan account within seven business days of their withholding from employee compensation (that’s the more liberal rule for employers with fewer than 100 employees).

Employers with plans providing matching and profit-sharing contributions that are made in amounts determined from year to year at the employer’s discretion may want to reduce or discontinue those contributions for the balance of the year (advance notice to their employees is required). Fixed matching and formula profit-sharing contributions also may be prospectively reduced but a plan amendment and participant notice will be required.

Even safe harbor contributions (matching or fixed contributions provided to exempt the plan from numeric nondiscrimination testing) may also be suspended for the balance of the year by employers operating at an “economic loss” or by plan amendment if certain plan and notice provisions are satisfied.


Repayment of participant loans is usually made by payroll deduction. For departing employees, this presents a problem because any unpaid loan balance may have to be treated as a non-cash distribution of benefits to the employee that is subject to income tax and possibly a ten percent early distribution excise tax.

Consider placing employees on an unpaid leave of absence, or a furlough, rather than terminating employment. A furlough can postpone the participant’s loan repayment obligation for up to one year. Also bear in mind that participant loans can be repaid from severance compensation if permitted by the plan’s loan guidelines and severance compensation is not limited to just highly compensated employees.

Employers may want to consider adding an in-service distribution provision to provide continuing and furloughed employees with access to their 401(k) benefits prior to termination of employment.

Continuing employees with reduced work schedules may want to reduce or suspend their 401(k) contributions for the balance of the year, take out a participant loan, or make a hardship withdrawal if permitted by the terms of the plan.

Bear in mind that, in the current unprecedented circumstances, there is no template for 401(k) sponsors or employees to follow. Any one of the above options may, or may not, apply to your particular circumstances, but relief provisions concerning participant loans and required minimum distributions are in the works and we expect to hear more from Congress and the IRS about 401(k) planning options in the near future.

We remain available to answer your questions, so do not hesitate to reach out to Andrew Williams (312.696.1373) or Katherine Oswald (312.696.1019) to discuss your specific 401(k) and employee benefit issues or concerns.