The Time Is Now to Optimize DC Plan Loan Policies

TimeThe COVID-19 pandemic has exposed many financial vulnerabilities, both for companies and employees, and it has highlighted how company-sponsored retirement savings plans are sometimes used as dual-purpose vehicles. Although they were originally designed to fund retirement in the post-pension era, many are now also acting as short-term emergency savings funds.

With the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, defined contribution (DC) plan sponsors face important decisions with respect to their plan design, specifically whether or not to adopt the special distribution and loan limit increases for those affected by the coronavirus. It is a good time for plan sponsors to consider additional design changes that could help preserve long-term retirement security, especially ones—such as extended 401(k) loan repayment and automated loan insurance—that address participant challenges related to job loss, given the unprecedented economic fallout from the COVID-19 pandemic.

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