Consolidated Appropriations Act, 2021 retirement plan impact
On Dec. 27, 2020, the Consolidated Appropriations Act, 2021 (the “Act”) was signed into law, which included the latest COVID-19 relief bill. The Act had several impacts to retirement plans:
Partial plan terminations
The Act includes a temporary rule preventing certain partial plan terminations. A plan will not be treated as having a partial plan termination, if the number of active participants in the plan on March 31, 2021, is at least 80% of the number of active participants on March 13, 2020. This was designed so that an employer who had laid off a significant percentage of their workforce during the COVID-19 pandemic, could restore employee counts by March 31, 2021, and avoid a partial plan termination.
The impact of COVID-19 on employee retirement plans, provides additional detail on partial plan terminations during the COVID-19 pandemic.
Qualified disaster distributions
The Act allows qualified participants to take up to a $100,000 qualified disaster distribution from an eligible retirement plan for any disaster that was declared by the president beginning Jan. 1, 2020, and ending 60 days after the enactment of the Act. There are no tax penalties on these distributions, income tax would be spread ratably over three years, and participants may repay the distribution back to the retirement plan within a three-year period if the retirement plan accepts rollovers. Qualified participants have 180 days after the enactment of the Act to take the qualified disaster distribution.
A qualified participant is an individual whose principal residence is located in the qualified disaster area and who suffered an economic loss as a result of the qualified disaster.
A qualified disaster is any disaster that occurred between Dec. 28, 2019, and Dec. 27, 2020, that was declared by the president under the Robert T. Strafford Disaster Relief and Emergency Assistance Act beginning Jan. 1, 2020, through Feb. 25, 2021.
Disaster-related plan loans
The Act allows qualified participants to take a plan loan up to $100,000 or 100% of the present value of the vested participant account balance. Loan repayments may be suspended up to one year, if repayment of the loan would be due during the period of the first day of the disaster incident and ending 180 days from the last day of the disaster incident period. Interest on the loan will continue to accrue during the suspension period.
A qualified participant is an individual whose principal residence is located in the qualified disaster area and who suffered an economic loss as a result of the qualified disaster.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.
