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The Coronavirus Relief Bill: Few Concerns for Retirement Plan Sponsors

This time last year, retirement plan sponsors and those who work with them were focused on the ramifications of the SECURE Act, the first piece of retirement plan legislation in over a decade. Shortly thereafter, the CARES Act took center stage and left plan sponsors to deal with more changes. Towards the end of 2020, there was talk that plan sponsors should be prepared for another major overhaul of retirement plan regulations, due to the proposed follow-up SECURE Act legislation. While the bill was not incorporated into other year-end legislation, it may still be passed in the first quarter of this year.

Much to the relief of plan sponsors, many of whom were faced with a challenging 2020 in a variety of ways, the Consolidated Appropriations Act, 2021 (more commonly known as the Coronavirus Relief Bill) that was signed into law on December 27, 2020 contains little in the way of retirement plan provisions, most of which are not terribly significant. Below is a recap of those retirement-related provisions:

  • Partial Plan Termination Relief — Due to COVID-related layoffs of more than 20% of retirement plan participants, many retirement plan sponsors have been concerned that their plans might be considered by the IRS to be partially terminated. In this case, all non-vested contributions would be required to be 100% vested. Fortunately, the Act provides some relief, albeit temporary. For employers that rehire employees (who are active in the retirement plan) by March 31, 2021 to 80% of what the active plan participant count was back on March 13, 2020 (when the national emergency was declared), the relief prevents any partial plan termination. However, the relief is specific to these dates, unless the deadline is extended. The National Association of Plan Advisors (NAPA) has an article with examples on how this relief works.
  • Disaster-Related Distributions — The Act provides for distributions and loans on account of FEMA-declared non-COVID national disasters (such as hurricanes, floods, etc.), with rules similar to the CARES Act provisions for coronavirus-related distributions and loans. These distributions are permitted through June 26, 2021 for disasters declared on, or prior to, February 26, 2021.
  • Money Purchase Plan Coronavirus-Related Distributions (CRDs) — The Act provides for greater CRD flexibility in Money Purchase Plans, with in-service CRDs permitted for employees under age 59½. However, this relief came too late for 99.9% of employees, since CRDs are no longer allowed (the CARES Act provision expired at year-end).
  • Department of Labor (DOL) e-Delivery Report Requirement — The Act requests that the DOL provide a report assessing the impact of the final DOL electronic delivery regulations.
  • Employer Defined Benefit Plan Transfers for Future Retiree Medical/Life Insurance Costs — The Act allows for these transfers, known as Section 420 transfers, to be reversed in 2021 and restored to the defined benefit plan.
  • Age-55 Distributions for Certain Employees in the Building and Construction Industry — While this provision is likely only a concern for those playing a game of Coronavirus Relief Bill Trivia, it may be the most insignificant provision of the Act. This provision lowers the in-service distribution age from 59½ to 55 in a handful of pension plans that provided such a feature to building and construction industry workers.

Given these minor retirement provisions, the Coronavirus Relief Bill is likely more notable for what was NOT included, rather than what was – namely, the extension to any CARES Act deadlines for coronavirus-related distributions, loan repayments, and waivers of Required Minimum Distributions (RMDs). With none of these deadlines extended past year-end, plan participants can no longer take advantage of CARES Act features in 2021.

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Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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