Board members at the Pennsylvania State Employees’ Retirement System (SERS) made several changes on Friday for participants in the system’s deferred compensation (DC) plans, including waiving required minimum payments for the rest of the year and offering coronavirus relief.
Typically, retirees age 72 and older must withdraw a minimum amount every year to avoid a tax penalty. But a recent provision under the CARES [Coronavirus Aid, Relief and Economic Security] Act, the federal fiscal relief package, dropped those required minimum payments from retirement plans.
Pennsylvania SERS additionally said it may pull balances from any payments already issued this year within two months of distribution.
“No minimum distribution payments will be made for the remainder of the year and any minimum distributions already issued may be rolled back into the plan within 60 days of the distribution,” read a release from the fund.
The change under the CARES Act is intended to help portfolios to recover from the recent stock market downturn, which erased about 20% from equity markets last month. That would be a boon to Pennsylvania SERS, which was just 56% funded in 2018.
It could also help some retirees who would prefer to leave their funds to grow in the plan. The deferred compensation plan (also known as defined contribution) has $3.9 billion in assets for some 57,000 voluntary participants. By comparison, the defined benefit plan in the same Pennsylvania SERS system is worth $30.9 billion, as of January.
To help those in need, the state retirement system will now offer early distribution withdrawals for all members in the defined contribution plan impacted by COVID-19. The coronavirus-specific payments, which are free of any tax penalty, can be repaid within three years.
Plan participants can receive a distribution up to $100,000—or the balance of their account—if they or their spouse or dependent were diagnosed with the disease. Members who are furloughed, quarantined, laid off, or had work hours reduced can also get the payment.
Parents who are unable to work for lack of child care, or members who have had to close a business or reduce hours also can choose the early distribution.
In a statement, SERS Executive Director Terri Sanchez said: “While participants will need to very carefully balance their retirement readiness and current living needs, this provision could be a real lifeline for many.”