As the COVID-19 pandemic has increased the number of employee layoffs and furloughs, many retirement plan sponsors have needed a reminder of what constitutes a partial plan termination under the Employee Retirement Income Security Act (ERISA) and IRS rules.
The American Institute of Certified Public Accountants (AICPA)’s Employee Benefit Plan Audit Quality Center (EBPAQC) has issued an advisory titled “Partial Employee Benefit Plan Terminations.”
“Partial plan terminations may occur when there is substantial employer-initiated employee turnover, either due to a significant event, such as a plant or division closing or as a result of adverse economic conditions or other events that are outside of the employer’s control. A partial plan termination may also be the result of plan amendments that adversely affect the rights of employees to vest in benefits under the plan. Certain factual circumstances may affect the assessment of a partial plan termination,” the report says.
The latest COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, enables certain retirement plan sponsors that laid off or furloughed employees due to the economic effects of the pandemic to avoid a partial plan termination. “In effect, this provision gives companies until March 31, 2021, to rehire laid off workers and avoid a partial plan termination,” law firm Eversheds Sutherland noted on its website.
Even still, plan sponsors will have to assess whether a partial plan termination has occurred, and they need to know what steps to take if it has.
The EBPAQC’s advisory provides plan sponsors, administrators or trustees with an understanding of partial plan terminations under ERISA and their related responsibilities. It describes what constitutes a partial plan termination; discusses the plan administrators’ fiduciary responsibilities related to partial plan terminations; describes actions that must be taken to implement consequences of a partial plan termination; and explains how plan sponsors can rebut the presumption of a partial plan termination.
The advisory also provides suggestions for best evaluating whether a partial plan termination has occurred.
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