Employee Benefit Plans Under the Consolidated Appropriations Act

The 2021 Consolidated Appropriations Act (“CAA”) combines $900 billion in stimulus relief for the COVID-19 pandemic with a $1.4 trillion omnibus spending bill for the 2021 federal fiscal year. This act includes various provisions related to retirement plans:

• Partial plan termination relief
• Limited retirement disaster relief
• Money purchase plan coronavirus-related distributions
• Various other relief

Before providing information on the partial plan termination relief, it is important to understand what triggers a potential partial plan termination. In evaluating a partial plan termination, plan sponsors must consider the number of participants that were involuntarily terminated. Generally, when 20% or more of the participants in a 401(k) plan are involuntarily terminated, give consideration as to whether a partial termination has occurred. This is a rebuttable presumption and not a set standard. Plan sponsors need to consider all of the facts and circumstances related to their plan. If the plan has met the standard for a partial plan termination, participants that were terminated become 100% vested in their employer contributions within the plan.

The CAA relief states that: “A plan shall not be treated as having a partial plan termination during any plan year which includes the period beginning on March 13, 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.” The following is an example:   

• A plan has 5,000 active participants as of March 12, 2020.
• The plan has 4,000 active participants as of March 31, 2021.
• At least 1,500 participants were involuntarily terminated.
• The company hired 500 new employees during this period.

Based on the aforementioned facts and circumstances, the plan would meet the 20% threshold for the number of participants terminated during a period of time. However, since the plan had at least 80% of the active participants by March 31, 2021, it would not have a partial termination during the plan year. Take care when evaluating the facts and circumstances of such; often consultation with an ERISA attorney is prudent.

The CAA provided some retirement plan disaster relief for qualified events that apply to non-COVID-related major disaster declarations made by the president. These include, but are not limited to, hurricanes, floods, severe storms and wildfires. This link gives a full list of major disaster declarations that have been made and are qualified under this relief.

The  provisions for the retirement plan disaster relief are optional and not required to be adopted by a retirement plan. If a plan sponsor chooses to adopt the provisions, the plan must be amended no later than the last day of the first plan year beginning on or after January 1, 2022. These provisions will let a participant repay hardship distributions related to a principal residence as well as provide loan relief.

The CAA also retroactively amends the 2021 Coronavirus Aid, Relief, and Economic Security Act to allow money purchase plans to take coronavirus-related distributions. A coronavirus-related distribution is one that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans, including an IRA. 

The CAA also lowers the age for in-service distributions under Code Section 401(a)(36) to age 55 and allows for transfers of excess pension assets to retiree health or life accounts.