Compliance News | February 12, 2021
The Consolidated Appropriations Act, 2021 has limited retirement provisions:
The CARES Act allowed in-service coronavirus-related distributions from 401(k) and 403(b) plans for participants affected by COVID-19. The provision did not specifically include in-service distributions from money purchase plans. (We summarized the impact of the CARES Act for 401(k) and 403(b) plans in our March 30, 2020 compliance insight.)
The Consolidated Appropriations Act, 2021 fixes that omission. Because the period for making COVID-19-related distributions ended December 30, 2020, the most significant impact of this change is that it provides legal authority for 2020 in-service distributions from money purchase plans.
A plan is considered to have had a “partial termination” in a year if it has lost at least 20 percent of active participants. If a plan has a partial termination, affected participants must be vested to the extent the plan is funded.
Some plan sponsors were concerned that it would be misleading to use the 2020 calendar year (or a plan year ending in 2020) as the measuring period because many furloughed workers would be rehired in 2021.
The Consolidated Appropriations Act, 2021 provides that a partial termination will not occur for any plan year that includes the period beginning on March 13, 2020 and ending on March 31, 2021 if the number of active participants on March 31, 2021 is at least 80 percent of the number of active participants on March 13, 2020.
The Consolidated Appropriations Act, 2021 provides special rules for retirement plans that make qualified disaster distributions. The special rules are essentially identical to the special rules that applied under the CARES Act for coronavirus-related distributions and loans. These include:
The relief is available for non-COVID-19-related disasters that were declared by the president beginning on January 1, 2020 and ending by February 25, 2021 (the date 60 days after the Consolidated Appropriations Act, 2021 was signed into law). The relief applies to an individual who lives in the qualified disaster area on or after the disaster incident and June 25, 2021 (before 180 days after the enactment of the Consolidated Appropriations Act, 2021).
More retirement legislation is likely in 2021 as part of the budget reconciliation bill now pending in Congress and in “SECURE Act 2.0,” which is expected to be a bipartisan effort.
This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.
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