The recent Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the COVID-19 Related Tax Relief Act of 2020 are both part of the Consolidated Appropriations Act, 2021. The Acts contain various retirement plan changes. A brief summary of the related provisions is provided below:
- Temporary partial plan termination relief has been provided. Under the temporary rule, a partial plan termination will not have occurred during any plan year that includes the period beginning on March 13, 2020, and ending March 31, 2021, if the number of active participants on March 31, 2021, is at least 80% of the number of active participants on March 13, 2020. It is important to note that active participant is defined as an employee that meets the eligibility requirements, not one that actively contributes.
The partial plan termination rules are a serious consideration for employers any time they layoff a large number of employees. All employees that terminate in a year a partial plan termination occurs become 100% vested. Failure to do so can result in a significant additional cost to the employer.
- Expanded provisions for qualified disasters other than COVID-19. Specifically, those impacted by a qualified disaster may be eligible to receive distributions up to $100,000 without the 10% early withdrawal penalty and/or take out a plan loan up to $100,000. These provisions are designed to mirror the COVID-19 relief provisions under the Cares Act passed in early 2020. It should be noted that plans are not required to allow for qualified disaster relief, however they can be retroactively amended to allow for such provisions.
- Money purchase pension plans are permitted to retroactively allow COVID relief distributions “CRDs” that were allowed under the CARES Act for other defined contribution plans. Such distributions taken during 2020 are granted favorable tax treatment as detailed in the Act for CRDs.
Arguably, the omissions from the Acts are more notable than the inclusions. The various Cares Act relief provisions: COVID relief distributions, increased plan loan limits, and waiver of required minimum distributions were not extended for 2021. Presumably, the ongoing impact of COVID and the status of the overall economy will drive whether or not additional changes will be forthcoming.
If you should have any questions, please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301.231.6257.