Some temporary relief to the partial plan termination rules was recently provided for companies that experienced significant turnover in 2020. The Consolidated Appropriations Act, which was signed into law on December 27, 2020, includes a rule that provides some short-term relief regarding partial plan terminations.
In particular, the relief states that a plan shall not be considered as having a partial plan termination during any plan year that includes the period beginning on March 13, 2020 and ending on March 31, 2021 if the number of participants covered by the plan on March 31, 2021 is at least 80% of the active participant count on March 13, 2020.
In general, the IRS considers a partial plan termination to have occurred if there is a reduction in the number of participants who terminated employment for involuntary reasons during a plan year of 20% or more. In the event of a partial plan termination, all impacted participants (those who terminated during the measurement period) must be fully vested in their account balances.
This means a plan whose plan year includes that covered period has some additional time to determine if a partial plan termination occurred. For example, assume that a calendar year 2020 plan which had 100 participants on March 13, 2020 lays off 25 employees and only has 75 participants on December 31, 2020. Under normal circumstances, that would represent a 25% involuntary reduction in participants which would trigger a partial plan termination. If the company rehires 6 of those participants by March 31, the involuntary turnover is now less than 20% and the partial plan termination no longer applies.
On January 12, 2021, the Department of Labor (DOL) issued some guidance regarding the steps it feels plan fiduciaries should take to locate and distribute benefits to missing participants. The guidance is listed in Field Assistance Bulletin 2021-01. The guidance also happens to list some best practices to find missing participants. Some examples of the best practices includes:
- Checking related plan and employer records for participant, beneficiary and next of kin contact information.
- Checking with designated plan beneficiaries and the employees emergency contacts (in the employers records) for updated contact information.
- Use of free online search engines, public records databases, obituaries and social media to locate individuals.
- Using a commercial locator service.
- Attempting to contact via US Post Office certified mail to the last known mailing address.
- Attempting contact via other means such as email addresses, telephone and text numbers, and social media.
- Reaching out to colleagues of missing participants, for example contacting employees who worked in the same office or by publishing a list of missing participants on the companies intranet.
The guidance also offers best practices for plan sponsors to document their efforts. If you have missing or unresponsive former participants, please consider following these best practices.
The CARES Act provided for a waiver of Required Minimum Distributions (RMD) to be paid from defined contribution plans and IRA’s for the 2020 calendar year. This waiver includes RMD’s for people who became RMD eligible in 2020 who under normal circumstances were required to receive their RMD no later than April 1, 2021. This waiver of the RMD rules only applied for RMD’s to be paid in calendar year 2020, so now that we are in 2021 RMD’s are required to be paid once again.
The calendar year 2021 RMDs are still based on mortality tables that haven't changed in years. However, the IRS recently updated the life expectancy tables that will be used to calculate RMDs after December 31, 2021. The new tables reflect the fact that people are living longer. That's good news for those who are required to take these required distributions, as future annual payments will be less than they would have been under the old tables.
