A NON-TECHNICAL REVIEW OF QUALIFIED RETIREMENT PLAN LEGISLATIVE AND ADMINISTRATIVE ISSUES
2020 , and ending on March 31 , 2021 , if the number of active participants covered by the plan on March 31 , 2021 is at least 80 % of the number of active participants covered by the plan on March 13 , 2020 .”
TERMINATED EMPLOYEES ? IMPORTANT RELIEF IS HERE .
ON DECEMBER 27 , 2020 , THE CONSOLIDATED APPROPRIATIONS ACT , 2021 WAS SIGNED INTO LAW . The Act combines the $ 1.4 trillion omnibus federal spending package for the 2021 fiscal year and a $ 900 billion COVID-19 stimulus package that enhances and expands certain provisions of the Coronavirus Aid , Relief , and Economic Security ( CARES ) Act . In addition to direct stimulus payments , extending unemployment benefits to many workers , and another round of Paycheck Protection Program ( PPP ) loans , the COVID stimulus package includes important retirement plan relief .
PARTIAL PLAN TERMINATION
Perhaps the most significant element of the stimulus package for plan sponsors impacted by the COVID-19 pandemic is the temporary rule preventing partial plan terminations . In general , a plan may experience a partial plan termination when turnover among plan participants exceeds 20 % in a particular year , resulting in full vesting of all accounts of participants affected by the partial plan termination . Whether a partial termination has occurred is not always an easy call . The IRS makes it clear that the determination is based on the facts and circumstances of the particular scenario .
The IRS previously provided guidance to clarify that generally , employees who had been furloughed or laid off due to COVID-19 but were rehired by the end of 2020 would likely not be treated as having an employer-initiated severance for the purposes of determining a partial plan termination . However , the Consolidated Appropriations Act includes the following temporary rule regarding partial plan terminations :
“ A plan shall not be treated as having a partial termination during any plan year which includes the period beginning on March 13 ,
It is important to note that the 80 % count does not have to be comprised of the same participants that were initially terminated . However , the plan ’ s eligibility requirements should be taken into consideration .
The new relief is based on 80 % of the “ active participants .” If the employees include new hires ( e . g ., the laid-off employees found other jobs ), whether they count towards the 80 % depends on the eligibility conditions of the plan . If the new hires do not satisfy the plan ’ s eligibility conditions by March 31 , 2021 , they cannot be included in the active participant count .
Active participants were not defined in the bill . Presumably , active participants include employees eligible to defer , even if they choose not to do so .
QUALIFIED DISASTER DISTRIBUTIONS EXTENDED
The Act includes a temporary extension for individuals to take a retirement plan distribution or loan if they reside in a presidentially declared disaster area . The extension is effective for 60 days after the date of enactment and applies to individuals residing in presidentially declared disaster areas ( other than COVID-19 ) declared after Dec . 31 , 2019 . Participants in 401 ( k ), 403 ( b ), money purchase , and government 457 ( b ) plans may take an aggregate distribution up to $ 100,000 without incurring the 10-percent additional tax on early distributions . Income tax on these distributions may be spread ratably over a three-year period , and participants may repay the distribution into a plan that accepts rollovers within three years .
Note that qualified disaster areas are areas where a qualified disaster was declared , but do not include areas that are disaster areas solely due to the COVID-19 pandemic .
QUALIFIED DISASTER LOANS
The Act also enables qualified individuals to receive plan loans up to $ 100,000 or 100 % of the participant ’ s vested account balance . Additionally , the repayment period is extended for up to one year ( or up to 180 days after enactment of the Act , if longer ) if repayment of the loan normally would be due during the period
BENEFIT INSIGHTS WINTER 2021