Relief provided for partial terminations

partial termination

The Consolidated Appropriations Act, 2021, signed into law by President Donald Trump on December 27, 2020, provided COVID-19 relief, including some retirement plan law changes.

Section 411(d)(3) of the Internal Revenue Code requires retirement plans to provide for 100% vesting upon termination or partial termination of a plan. A partial termination may be deemed to occur when an employer reduces its workforce (and plan participation) by 20%. The turnover rate is calculated by dividing employees terminated from employment (vested or unvested) by all participating employees during the applicable period, which is usually a calendar year.

The Act changes the rules temporarily, by changing the measuring stick from the period of COVID emergency, with the hopes that affected employers could re-hire employees previously terminated before March 31, 2021.

Section 209 of the Act provides that a plan will not be treated as having had a partial termination during any plan year which includes the period beginning March 13, 2020, and ending March 31, 2021, if the number of active participants in the plan covered on March 31, 2021, is at least 80% of the number on March 13, 2020. This means businesses that may have suffered greatly from the pandemic, forcing layoffs and plant closings, but whose employment numbers rebound by the end of March of 2021, will not be required to fully vest those who were terminated.


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