Over the last few months, government agencies have been working on extending relief options for individuals and businesses. As part of this response, there have been extensions provided to retirement plan benefits, operations, and reporting. This article summarizes key extensions that impact plan participants’ accessibility and plan sponsors’ compliance and administration in 2021.
The Consolidated Appropriations Act, 2021 (the “CAA”) was signed into law on December 27, 2020 and included several retirement plan provisions.
- Under this new law, a retirement plan will not have a partial termination for a plan year if: (1) any portion of the plan year includes the period beginning March 13, 2020, and ending March 31, 2021; and (2) the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.
- The IRS previously issued guidance under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) clarifying that employees furloughed or laid off due to COVID-19 but rehired by the end of 2020 would not be counted in determining whether a retirement plan incurred a partial plan termination for the plan year. The CAA gives employers broader relief than the IRS guidance.
- A partial plan termination is a vesting event that occurs when more than 20% of a retirement plan’s participants are involuntarily terminated during the plan year. If a partial termination takes place, all “affected employees” must be fully vested in their retirement plan benefit, regardless of whether they earned enough service as of their termination date to be 100% vested under the plan’s vesting schedule.
- The Act did not extend the Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) distribution provision that expired on December 30, 2020 and the loan payment deferment provision that expired on December 31, 2020. A short summary of the CARES Act can be reviewed here.
- The CAA also includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020, providing certain tax relief to individuals affected by Federal Emergency Management Agency (FEMA) declared disasters occurring between January 1, 2020, through February 25, 2021 excluding COVID-19 related disaster areas. Affected individuals may:
- Take plan distributions of up to $100,000 which:
- are exempt from the 10% premature distribution excise tax, 20% mandatory federal income tax withholding and Section 402(f) Special Tax Notice requirements;
- may be paid back to a qualified plan or IRA within three years as a tax-free rollover; and
- may be included in income ratably over a three-year period
- Recontribute certain hardship withdrawals previously taken from the plan for an aborted purchase of a home in the disaster area without tax penalty, and
- Take plan loans under increased availability limits and delay the repayment period for certain plan loan repayments.
- Take plan distributions of up to $100,000 which:
The now-extended Notice 2020-42 provides temporary relief from the physical presence requirement for any participant election witnessed by either; a notary public in a state that permits remote notarization, or a plan representative using certain safeguards.
- Under the guidance, in the case of a participant election witnessed by a notary public, for the period noted, the individual may use an electronic system facilitating remote notarization if executed via live audio-video technology that otherwise satisfies the requirements of participant elections and that is consistent with state law requirements.
- For the same period, in the case of a participant election witnessed by a plan representative, the IRS explained that individual may use an electronic system using live audio-video technology if the specific requirements are satisfied.
California Employers – CalSavers had extended the deadline for employers with more than 100 employees that don’t already sponsor a retirement plan. However, no extension has been announced for employers with more than 50 employees; deadline stands at June 30, 2021.
- Employers with at least five employees who don’t already offer a workplace retirement plan must register for a CalSavers program or adopt their own retirement plan no later than June 30, 2022.
- If your company does not offer a retirement plan, check with your Sequoia team for options before your company’s applicable deadline.
We expect government agencies to continue to provide guidance and accommodations throughout the COVID-19 pandemic to address critical employee benefit needs. Sequoia is proud to be your consulting partner and will continue to keep you abreast of pertinent updates. If you have any questions or need guidance on your program’s compliance and administration, please reach out to your Sequoia 401k Advisor, or connect with them directly in HRX.
Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2020 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved
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, LLC/Pensionmark Securities, LLC and Sequoia Consulting Group are non-affiliated entities.