Partial Plan Termination Relief

Legislative & Regulatory Update

Did your company experience a workforce reduction related to the Coronavirus and now you are concerned about a partial retirement plan termination? 

One of the fears caused by coronavirus triggered layoffs has been its impact on retirement plans and the potential of encountering a partial plan termination.

A partial plan termination generally occurs if a qualified retirement plan loses 20% or more of its participants during the plan year.  If this happens, the law requires all “affected employees” to be fully vested in their account balance.  Essentially, they become 100% vested in all employer contributions (including matching contributions) regardless of the plan’s vesting schedule.  

The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, temporarily relaxes this standard for any qualified retirement plan year occurring between March 13, 2020 and March 31, 2021 by not deeming the plan as partially terminated provided the number of participants in the plan on March 31, 2021 is at least 80% of the number of participants that were in the plan on March 13, 2020.

In essence, this partial plan termination provision of the Act allows companies until March 31, 2021, to rehire employees and avoid a partial plan termination.

Be sure to consult with your Recordkeeper and/or TPA to determine if your plan has incurred a partial plan termination or if the Act applies in avoiding such determination.

As always, Enza Financial LLC is available to assist in your retirement plan needs and is ready to help answer any questions you may have.

Enza Financial LLC Independence, Ohio (216) 236-0700

Enza Financial LLC does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation.