Don’t get caught with a partial termination issue when you have your 401(k) plan audited this year due to COVID! Look no further and learn below how you can get relief when it comes to COVID Workforce Reductions and Your Company’s 401(k) Plan.
The Consolidated Appropriations Act 2020 was signed into law on December 27, 2020. It grants relief for any partial plan termination that might have occurred between March 13, 2020, and March 31, 2021.
… which means you can take advantage of the IRS extension.
COVID Workforce Reductions
Under the old IRS rules, if you reduced your workforce by at least 20% during a plan year, any dismissed employee would become 100% vested in the employer’s contributions. That means these employees no longer working for you would be immediately entitled to 100% of your employer contributions, even if they had not been fully vested in the plan (per your plan’s vesting rules).
That could mean a large cash outflow from your plan if all these employees decided to take their money out. Here’s your get-out-of-jail-free card.
“Temporary Rule Preventing Partial Plan Termination:
Modifies the current partial plan termination rules to ensure such termination does not occur if the active participant count as of March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.”
So, please check your participant numbers right now to be sure to get them to 80% by March 31, 2021.
Please call our offices at 714-569-1000 if you have any questions. And check with your HR and benefit plan attorneys. There may be some mitigating circumstances such as seasonality or normal ebbs and flows of your workforce complement that would be exceptions to COVID Workforce reductions.