Jan. 15, 2021
The Consolidated Appropriations Act, 2021, H.R. 133 (the “CAA”) signed into law by the President on Dec. 27, 2020 and a variety of IRS guidance issued in the first week of 2021 mean that employers entering the new year have lots of COVID-19 relief to digest. This Alert is the third part of our three-part series focusing on COVID-related changes affecting employers and their employee benefit plans. Here we focus on retirement-related provisions.
Employers can avoid a 2020 partial plan termination by increasing participant counts by March 31, 2021. The CAA provides limited relief from a plan sponsor’s obligation to fully vest certain terminated participants if the plan suffered a partial plan termination under Code Section 411(d)(3) in the 2020 plan year.
Generally speaking, a partial plan termination occurs if the number of employees participating in a plan decreases by 20% or more during the applicable period (typically the plan year). When calculating this reduction, plan sponsors must include all employer-initiated severances including reductions in force and plant closures, even where due to events outside of the plan sponsor’s control, such as depressed economic conditions resulting from COVID-19.
The CAA provides that a plan will not be treated as having suffered a partial plan termination under Code Section 411(d)(3) during any plan year that includes the period beginning 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.
Additional relief is provided for participants impacted by “qualified disasters” other than COVID-19. A “qualified disaster” is any disaster (such as storms or fire) declared by the President under the Stafford Act during the period beginning Jan. 1, 2020 and ending Feb. 25, 2021 (i.e., 60 days after enactment of the CAA). Only participants whose principal place of abode is located in a qualified disaster area and who suffered an economic loss as a result of the qualified disaster are eligible for this relief (“Qualified Individuals”).
The Qualified Disaster provisions in the CAA are optional. The CAA does not require that a plan be amended to permit the above-described distributions or loans, or the repayment options. If a plan sponsor wishes to adopt any of these relief provisions, the applicable plan documents must be amended to reflect the necessary plan language on or before the last day of the first plan year beginning on or after Jan. 1, 2022.
The availability of in-service COVID-19-related withdrawals is now extended to money purchase pension plans. This relief expands the CARES Act relief that allowed participants who are diagnosed with COVID-19, whose family members are diagnosed with COVID-19, or who experience qualifying adverse impacts from COVID-19, to take withdrawals of up to $100,000 from eligible retirement plans (i.e., 401(k), 403(b), and 457(b) plans and IRAs) (see our prior alert). This expanded relief is retroactive to the enactment of the CARES Act on March 27, 2020.
Plan sponsors of multiemployer plans in the building and constructions industry may allow in-service distributions at or after age 55. This makes a special exception to the general rule under Code Section 401(a)(36) that provides that defined benefit pension plans may permit in-service distributions only after participants attain age 59 ½.
Prior relief waiving the “in-person” requirement for participant elections requiring witness by a notary public (e.g., qualified joint and survivor annuity elections and spousal consent) is now extended through June 30, 2021. The prior temporary relief was granted in IRS Notice 2020-42. The extension can be found in IRS Notice 2021-03.
IRS Notice 2020-32 and Revenue Ruling 2020-27 previously provided that taxpayers could not deduct expenses used to qualify for forgiveness of a PPP loan. The CAA reverses this position, removing the PPP loan prohibition so that employers who received a PPP loan may continue to deduct otherwise-eligible expenses, including retirement plan contributions.
While rare, if an employer has previously elected to make a “qualified future transfer” under Internal Revenue Code Section 420(f) from its overfunded defined benefit pension plan to fund a portion of retiree medical or life insurance benefit liabilities, the CAA offers the ability to prospectively terminate future transfers by making an election to do by Dec. 31, 2021. Additional requirements apply to such an election, so employers who wish to make such an election should consult legal counsel.
The Nelson Mullins Employee Benefits Group is ready to assist with questions or compliance steps. Please contact one of our Employee Benefits attorneys or the Nelson Mullins attorney with whom you work. For additional information on COVID-19 related issues, including summaries of other provisions of the CAA, please visit the Nelson Mullins COVID-19 resource page.
These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.