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Congress Passes Limited Relief for Retirement Plan Partial Plan Terminations

  • What is a partial plan termination?

In general, a partial plan termination has occurred if there is an employer-initiated action that reduces the number of participants by more than 20%. Some examples of employer-initiated actions are corporate mergers, plant closings, layoffs or other activities that result in a workforce reduction. If there has been a partial plan termination, all affected participants become immediately 100% vested in their plan accounts. Generally, this analysis is performed on the plan year, however, the IRS may look at a series of events over a different period of time and make a determination that a partial plan termination exists.

  • What Relief did Congress grant?

The Congressional measure compares staffing levels on March 13, 2020 and establishes a measuring period that ends on March 31, 2021. If the number of active participants on March 31, 2021 is 80% or more of the number of active participants on March 13, 2020, then the plan shall not be treated as having experienced a partial plan termination.

  • What Action Should Be Taken?

If you believe your plan may have experienced a partial plan termination for the 2020 plan year, you may delay this determination until March 31, 2021.

If Sentinel is the TPA for your retirement plan and you have any questions about whether your plan has experienced a partial plan termination or whether your plan may qualify for the relief, please contact your Sentinel Plan Consultant or Advisor.

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