Insights

IRS Provides Q&A on Partial Plan Termination Relief


On April 27, 2021, the IRS updated a set of questions and answers concerning coronavirus-related retirement plan relief by adding five questions clarifying the partial plan termination relief provided through the Consolidated Appropriations Act of 2021 (CAA).

The CAA provided relief from the requirement that employees be 100% vested in employer contributions should a partial plan termination occur. Under those rules, an employer terminating 20% or more of its workforce would trigger a partial plan termination (which would require the employer to vest their employees at 100%). The CAA stated that a company would not trigger a partial plan termination during the period beginning March 13, 2020, and ending March 31, 2021, if on the latter date the plan had at least 80% of the active participants that were enrolled on the former date.

The Q&As clarify a few concepts concerning this relief. Q&A two addresses how employers should determine who is an active participant in the plan by indicating that employers should apply a reasonable, good-faith interpretation of that term and apply it consistently.

Q&A three discusses how the CAA relief would apply when only a portion of the plan year falls between March 31, 2020, and March 31, 2021. When that occurs, the CAA relief applies to any partial termination determination for the entire plan year. The IRS then provided an example:

If a plan has a calendar year plan year, the 80% partial termination test in Section 209 of the Relief Act applies to both the January 1 to December 31, 2020, plan year and the January 1 to December 31, 2021, plan year, because both plan years include a part of the statutory determination period of March 13, 2020, to March 31, 2021.

Q&A four makes it clear that employers do not have to have the exact same employees covered by the plan by March 31, 2021, to benefit from this relief. Instead, for purposes of determining whether at least 80% of the active participants covered by the plan on March 13, 2020, were also covered by the plan on March 31, 2021, active participants include all individuals actively participating on March 31, 2021, regardless of whether those same individuals were participants in March 2020.

Finally, Q&A five indicates that the relief under the CAA does not solely apply to reductions in the number of participants that occurred due to the COVID-19 national emergency. The reductions could have occurred for any reason.

Employers who are seeking to receive relief under the CAA’s partial plan termination provision should familiarize themselves with these Q&As and work with their service providers to ensure compliance.

Partial Termination of a Qualified Retirement Plan Under Section 209 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 »