The latest COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, enables certain retirement plan sponsors that laid off or furloughed employees due to the economic effects of the pandemic to avoid a partial plan termination. The bill was signed last night by President Donald Trump.
The bill 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.”
As law firm Eversheds Sutherland notes on its website, “In effect, this provision gives companies until March 31, 2021, to rehire laid off workers and avoid a partial plan termination.”
The new bill doesn’t extend the time available for plan participants to take coronavirus-related distributions (CRDs); however, it does add money purchase pension plans as a plan type from which participants may take a CRD. The provision is retroactive to the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act provision of CRDs expires December 30.
The Consolidated Appropriations Act, 2021, also allows for distributions from retirement plans for participants affected by disasters other than the COVID-19 pandemic, as declared by the president. Participants in 401(k), 403(b), money purchase pension and government 457(b) plans may take up to $100,000 in aggregate from whatever retirement plan accounts they own without tax penalties. Income tax on these distributions may be spread over three years, and participants may repay them into a plan that is designed to accept rollovers within three years.
Participants have until 180 days after enactment of the bill to take qualified disaster distributions.
The new bill also extends the expanded limits for qualified retirement plan loans allowed under the CARES Act for that same 180-day period. It similarly extends the one-year delay in loan repayment for participants with repayment due dates between the first day of the disaster incident period and ending 180 days after the last day of the period.
The newly passed stimulus bill also includes provisions related to employer benefits other than retirement plans. The CARES Act allows employers to make payments of up to $5,250, tax free, toward employees’ student loans through the end of this year. The new bill extends that until the end of 2025.
In addition, the bill allows employers to extend the grace period for unused flexible spending account (FSA) benefits for 12 months after plan years ending in 2020 or 2021.