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Economic Insights and Peace of Mind Financial Provisions

As we experience an unprecedented time of change and uncertainty, many are processing and evaluating the current and future impacts of COVID-19 on their businesses and cash flows. For business leaders specifically, there is added pressure in discerning the effects that this time of uncertainty will have on your employees.

Here are economical and stock market insights, as well as a few pieces of guidance for employees and employers to follow during times of market uncertainty.

  • Prior to COVID-19 reaching our shores, the U.S. corporate and household balance sheets were strong, leaving our economy overall better prepared than the financial crisis of 2008.

  • An update from Chair of the Federal Reserve, Jerome Powell assured us that the volatility in the market isn’t systemic, but is a response to a short shutdown in response to the viral health outbreak.

This type of response can transform into the following economic scenarios:

  • Best-case scenario: 

    Shaped like a V, with a sharp dip followed by a quick uptick. If coronavirus cases decline in mid to late April and health authorities allow businesses to reopen, cooped-up consumers could embark on a spending spree that catapults market output back up. This scenario may be taking place in China now.

  • Medium case scenario:

    A “Nike swoosh”-shaped recession, with a sharp drop, followed by a bounce in Q3 and a plateau in Q4. 

  • Worst-case scenario:

    An L-shaped recession, where output plummets to the floor and stays there.

With all of this in mind, we are suggesting that employees focus on things they can control like how much they are saving, how their assets are allocated and staying focused on long-term financial planning. We also recommend that they continue to dollar-cost-average into their retirement plans through their regularly scheduled payroll deductions.

If individuals need to dip into their retirement funds during this period, they should consider their options carefully. The CARES Act, which was recently passed, includes changes for hardship qualifications and loan provisions for retirement plans. One of the provisions includes waiving the 10% early withdrawal penalty for distributions and plan loans up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. Employers and advisors should be well versed in these provisions and be able to guide groups on how to apply them to individual scenarios for employees.

As employers work to determine the financial and business impact of keeping their teams fully employed versus termination or furloughs, they can now also take into account the additional provisions of the CARES act, directly aimed at helping small businesses survive during this pandemic:

  • Loans to small businesses:

    Under the Emergency, The Secretary of the Treasury will implement a loan program for U.S. mid-sized businesses, where the majority of its employees are based in the U.S, by providing financing to banks and other lenders to make direct loans to eligible businesses

  • Tax credit for retaining payrolls:

    Includes an employee retention credit for employers subject to closure due to COVID-19. The provision provides credits to businesses that keep employees on payroll.

  • Unemployment benefits:

    Pandemic unemployment assistance will apply for individuals who cannot work or telework, are not receiving paid sick leave or other paid leave benefits, and who are not eligible for regular compensation or extended benefits under state or federal law or pandemic emergency unemployment compensation.

  • Payroll tax deferment:

    Under the CARES act, employers and self-employed individuals may defer their Social Security tax (6.2%) through 12/31/20 and payback over two years (50% by 12/31/21 and 50% due by 12/31/22) with no penalty

Additionally, from a cost management perspective, employers may be thinking about their retirement plans. Most employers have provisions in their plan to be able to stop matching contributions if needed, which is preferred over complete contribution termination. When 20% or more of the workforce is laid off, then the plan is subject to a partial plan termination and full vesting for employees. To better understand your specific scenario and what cost-saving options you might have, contact your plan advisor or recordkeeper.

With all financial advice, every business and individual scenario is unique, and decisions should be made with your circumstances in mind. With information flying into your inbox from all directions, my most important recommendation is to turn to a trusted advisor that can quickly understand the needs of your business and help you wade through this complex and fast-changing situation.

For more information on the important steps businesses should take during this uncertain time, visit our  OneDigital Coronavirus Advisory Hub, or reach out to your local OneDigital advisory team.

Investment advice provided by Resources Investment Advisors, LLC, an SEC-registered investment adviser and subsidiary of OneDigital.

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