---
title: "Business Owners: How does COVID-19 impact your retirement plan?"
description: "Over recent weeks, we’ve all been dealing with the fallout from COVID-19. If you’re a business owner, you’ve probably got your hands full making…"
url: https://financialadvisors.com/blog/business-owners-how-does-covid-19-impact-your-retirement-plan/
---

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# Business Owners: How does COVID-19 impact your retirement plan?

April 30, 2020

![A shopkeeper wearing a face mask hangs a welcome sign on her shop door](https://financialadvisors.com/_emdash/api/media/file/01M31D1R1GAM9Y7CN9S4YT8PXD.jpg)

Over recent weeks, we’ve all been dealing with the fallout from COVID-19. If you’re a

business owner, you’ve probably got your hands full making adjustments so your

business can continue to operate as normally as possible.

But don’t forget about your retirement plan. Even in unpredictable times, one fact

remains: if you are a retirement plan sponsor, you are a fiduciary of that plan. That

means if you sponsor a 401(k) or another plan for your company, you are legally

responsible to put your plan participants’ best interests in front of your own at all times.

This responsibility is not just a potential business liability; if you breach your

responsibility as a plan fiduciary, you may be held personally liable as well.

Which makes sense, if you think about it. Your retirement plan includes money

invested by your company, but also by your participants. That’s money they earned

that they need for their future. This responsibility can’t be taken lightly. You are

responsible to do everything needed to help keep that money as safe as possible.

Of course, you’re likely already doing everything you can think of. The problem lies

in following the complex regulations that govern these types of defined

contribution pension plans.

**High Stakes**

And now, the stakes are even higher. The past decade has seen an increasing trend

of litigation against plan sponsors, large and small. But that all occurred during a

long bull market, with participant balances likely rising. Imagine how much more

litigation might occur in a bear market, when investment values fall and people are

more inclined to find someone to blame.

It’s not just a few lawsuits, either. Plansponsor.com noted that more than 83,000

ERISA lawsuits have been filed against retirement plans since 2009.

These thousands of lawsuits have served to clarify what’s required of plan

sponsors. As a result of this case law, your responsibility as plan sponsor goes far

beyond setting up the plan correctly and picking funds that your participants can

choose from.

Instead, your role continues and requires ongoing actions. For example, upfront

research before picking mutual funds for the plan is not enough. The plan sponsor

needs to actively monitor mutual funds in the plan. If funds start underperforming

similar funds, for example, the sponsor is responsible for quickly replacing the

fund. Additionally, you need to conduct audits frequently to make sure plan

expenses are in line with what other plans your size are paying. As you might guess,

this requires an ongoing effort to manage the fund according to these best

practices and document everything in detail.

**Somebody’s Watching**

Worse, a few specialized law firms have been advertising online for employees who

are unhappy with their retirement plans. As we all know, litigation, even if it is

without merit, can be extremely expensive and disruptive.

That’s why it is critical that you stay compliant.

**Sharing the Responsibility**

Fortunately, there is a way to lessen your responsibility. That’s by hiring an advisor

qualified to share that fiduciary responsibility with you and make sure everything is

handled according to best practices.There are actually two types of fiduciary retirement

plan advisors. One is a 3(21) advisor. (That number simply refers to the section of the

Employee Retirement Income Security Act of 1974 (ERISA) that authorizes it.)

The second is a 3(38) advisor. While the 3(21) advisor simply shares the fiduciary

role, the 3(38) retirement plan advisor role goes much farther. These advisors can

make and implement investment decisions for the plan. In this case, that 3(38)

advisor takes on more liability….lessening yours. It’s important to note that you’re

still responsible to take care when hiring that advisor, then monitor their work

on behalf of the plan. However, when working with a 3(38) advisor, you have much

less liability.

**One More Challenge: CARES Act Changes**

There’s one more challenge for today’s retirement plan sponsor, and that’s

updating your plan as appropriate based on the CARES Act. The CARES Act

(Coronavirus Aid, Relief, and Economic Security Act) was put in place to help individuals and

businesses hit hard by the pandemic.

First, if your business has been impacted, you may have the ability to reduce or

temporarily suspend your employer contributions.

Then, several relief options are available for participants, including increased ability

to take money out of their accounts to help them mitigate a loss of income. But for

them to access these benefits, you’ll need to make changes to your plan. You’ll want

to carefully weigh the implications to make sure you handle that in the best interest

of your participants. Additionally, there will be more clarifications provided by the

IRS and other agencies as the industry tries to interpret the CARES Act.

**Take-Home Message**

There’s nothing easy about being an employer in today’s uncertain environment.

But when it comes to protecting your team’s money, you can’t afford mistakes.

Always keep in mind what’s at stake, and make sure you have the knowledge or

professional advice to help you do things right the first time. When it comes to

avoiding liability, an ounce of protection is truly worth a pound of cure.

John Odell is Principal of Capital Research + Consulting, a Retirement Plan Advisor to

governmental, non-profit and corporate retirement plans. With over $4 billion in plan

assets, we have over 27 years of experience keeping plan sponsors compliant and helping

participants prepare for the future.

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