By Janice Fortin, CPA, MST – Shareholder, Employee Benefits Group

With the new Consolidated Appropriations Act, 2021 (CAA) recently signed into law, many new COVID-19 relief provisions have been put into motion, from stimulus payments to another round of Paycheck Protection Plan (PPP) funding. Another major provision that was addressed is retirement plan termination relief, which enables retirement plan sponsors who laid off or furloughed employees due to COVID-19’s economic effect to avoid partial plan terminations. Doeren Mayhew gives you an inside look into these new provisions and explores how plan participants (and sponsors) can benefit from them.

Partial Plan Terminations

The new legislation states: “A plan shall not be treated as having a partial termination (within the meaning of 411(d)(3) of the Internal Revenue Code of 1986) 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.” This essentially means businesses have until Mar. 31, 2021, to rehire any laid off workers to avoid partial plan terminations.

While the new legislation doesn’t increase the available timeframe for plan participants to take Coronavirus-related distributions (CRDs), it does add a money purchase pension plan as another type of plan from which participants may take CRDs. This new provision is retroactive to the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, whose CRDs expired on Dec. 30, 2020.

Non-COVID-19 Disaster Distributions

Another provision of the CAA allows for retirement plan distributions for individuals who have been adversely affected by one of the numerous federally declared “qualified disasters”, other than the Coronavirus pandemic. Those participating in the following plans may take up to an aggregated $100,000 from any retirement plans they own without tax penalty:

  • 401(k)
  • 403(b)
  • Money purchase pension
  • Government 457(b)

The income tax on these distributions can be paid over three years and plan participants can repay distributions into plans designed to accept rollovers within three years. Disaster distributions must be taken within 180 days of the bill’s enactment.

Retirement Plan Loans

On top of disaster distributions, the CAA also extends the expanded limits for qualified retirement plan loans permitted by the CARES Act for the same 180-day threshold. Similarly, the one-year delay in loan repayment is extended for those with repayment due dates from the first day of the disaster incident period to 180 days following the final day of the period.

Keeping You Informed

Doeren Mayhew will continue to keep you up-to-date with the latest COVID-19 relief legislation. In the meantime, if you have questions about the CAA’s new retirement plan provisions, contact our Employee Benefit Plan Group today.