For plan sponsors, the legislation poses a difficult question: Should or shouldn't they adopt the retirement plan measures? Sponsors are not required to implement them, but if they do, they should try to limit the scope of what they make available to employees to avoid confusion, according to Alight's Ms. Borland. They might want to make either the hardship distributions or the plan loans easier, but not both, based on the demographics of their workforces, she said.
"We're a little bit concerned about the potential confusion if plan sponsors try to implement too much," she said.
Ms. Borland believes that plan sponsors are more likely to ease up on hardship withdrawals rather than plan loans because the withdrawals "apply to everyone" regardless of whether they still have jobs. Loans, unlike hardship withdrawals, are only available to individuals who are still employed by the sponsoring employer.
The new hardship withdrawal option also behaves almost like a loan since distributions can be repaid over three years.
In addition, hardship distributions under the legislation are available for all of 2020, unlike the stepped up plan loans, which are available through Sept. 23.
"I think that's the provision that we're really expecting will have the most traction within the plan sponsor community," Ms. Borland said, referring to hardship withdrawals.
For plan sponsors that do adopt the measures, it's important that they provide participants with "careful communications" about the potential short- and long-term impact of taking hardship withdrawals or loans, she said.
With retirement account balances down an average of 20%, participants should be aware that they're not going to "get that 20% back if they take their money out of the market," Ms. Borland said. They should realize that if they're unable to repay the loans or withdrawals, the impact on their overall retirement security will be significant given the compound interest lost and the time value of money.
For now, plan sponsors are considering their strategies. Some, for example, are thinking about providing participants with access to financial counselors to help participants think through their options based on their financial situation. Others are considering offering employees short-term loans that they can repay via payroll deductions, Ms. Borland said.
"Our clients are immersed and buried all day, every day, thinking about how to address and manage through the changing environment."