Consolidated Appropriations Act: 2021 Impacts To Retirement Plans

On December 21, 2020 the Consolidated Appropriations Act, 2021 (“CAA”) was passed by Congress; on December 27, 2020 it was signed into law by the President.  The law includes changes impacting partial terminations of qualified plans and impacting Coronavirus-Related Distributions for money purchase plans. More information on each topic is below. As always, please let your advisor know if you have any questions.

Did the Consolidated Appropriations Act, 2021 impact the determination of a partial termination for a qualified plan? Yes.  The CAA provides that a qualified plan will not be considered to have incurred a partial termination for any plan year that includes the period beginning March 13, 2020 and ending March 31, 2021, provided the number of active participants covered by the plan on March 31, 2021 is at least eighty percent (80%) of the number of active participants in the plan on March 13, 2020.  In application, this could impact both the 2020 plan year and the 2021 plan year .
Can you please provide an example of the partial termination exemption?

 

Assume that a calendar year plan has 100 active participants on December 31, 2019.  By March 13, 2020, the number of active participants had dropped to 75.  By December 31, 2020, the number of active participants had dropped to 65.  By March 31, 2021, the number of active participants had dropped to 61.  Finally, by December 31, 2021, the number of active participants was 55.

Because the number of active participants on March 31, 2021, exceeded eighty percent (80%) of the number of active participants on March 13, 2020, the plan will not incur a partial termination for the calendar year 2020.  In addition, the same would apply for the 2021 plan year.

Are there areas of ambiguity regarding the partial termination exemption? Yes.  It appears that further guidance from the IRS would be necessary to confirm that events happening after the end of a plan year, e.g., between January 1, 2021 and March 31, 2021, such as adding new active participants can impact the determination for the 2020 calendar year.
Did the CAA make revisions related to Coronavirus-Related Distributions?

 

Yes.  Prior to the CAA, Money Purchase Pension Plans could not make a Coronavirus-Related Distribution prior to the individual meeting other distribution requirements such as attaining age 62.  The CAA amended the Code retroactively to allow Coronavirus-Related Distributions prior to the normal distribution requirements in a money purchase pension plan. Similar to other types of plans, the Coronavirus-Related Distributions are optional. The retroactive effective date is March 13, 2020 and it expires December 31, 2020.
Next steps? ·        Obtain an active participant count on March 13, 2020 and an active participant count on the last day of the plan year that included March 13, 2020;

·        Compare active participant counts on March 13, 2020 and the last day of the plan year that included March 13, 2020;

·        Coordinate with the recordkeeper and/or third-party administrator to ensure partial termination analysis takes into account the suspension rule allowed for March 13, 2020 through March 31, 2021;

·        Coordinate with the recordkeeper and/or third-party administrator regarding whether Coronavirus-Related Distributions occurred within a Money Purchase Pension Plan;

·        Amend Money Purchase Pension Plan to reflect Coronavirus Related Distributions, if applicable.

 

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC). Pensionmark Financial Group does not provide tax or legal advice.  Please consult with a tax professional prior to deciding on any distribution option.