Employee Benefit Plans and COVID-19

As a result of the global pandemic and the financial burden it has placed on numerous families around the U.S., the government acted to increase access to employee benefit plan assets. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 provide fast and direct economic assistance for workers, families and small businesses.

Distributions

The CARES Act allows plan sponsors to permit participants to take special COVID-related distributions and loans from tax-advantaged retirement funds of up to $100,000 without a tax penalty. It waived the required minimum distribution rules for 401(k) plans and individual retirement accounts and the 10% penalty on early withdrawals of up to $100,000 from 401(k) plans.

Partial Plan Terminations

In addition to the CARES Act allowing coronavirus-related distributions and loans, a COVID-19 relief bill, attached to the Consolidated Appropriations Act of 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.

Generally, a partial plan termination may occur when 20% or more of participants are terminated. When a significant reduction in workforce occurs, you should perform an analysis to determine whether, based on the facts and circumstances, a partial plan termination occurred.

According to the bill, a plan shall not be treated as having a partial termination during any plan year that includes the period beginning on March 13, 2020, and ending on March 31, 2021, if 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.

Delay in Remitting Participant Contributions and Loan Payments

The DOL has communicated that it will not take enforcement action with respect to a temporary delay in depositing participant deferrals and loan payments to a plan solely due to the COVID-19 national emergency. Such plan contributions and loan payments generally must be  deposited as soon as they can be reasonably segregated from the employer’s general assets.

We recommend that plan sponsors ensure that any of the relief changes utilized are properly administered and accounted for.