Who would have expected that a pandemic would bring Congressional awareness of an oft-overlooked concept called Partial Plan Terminations? Congress codified a temporary (and now expired) partial termination safe harbor for qualified retirement plans in the Consolidated Appropriations Act, 2021. This was necessary because qualified plans can experience a partial termination due to layoffs resulting from an economic downturn. The pandemic created such an upheaval for many businesses that without such relief, an overwhelming number of plans would have partially terminated. However, even with businesses reopening, the economy continues to be in flux, and this can portend more employee turnover.
It is important to understand the partial termination rules so that employers can recognize whether their plan has experienced one when they terminate employees. This article covers the mechanics of determining whether a plan has experienced a partial termination by defining the applicable time period, calculating turnover, and determining who the affected employees are that will become 100% vested if a plan termination has occurred. This article includes the safe harbor created by Section 209 of the Consolidated Appropriations Act from a short-term and long-term perspective. The article then highlights compliance methods and litigation concerns. Lastly, the article discusses the need for IRS guidance going forward.
NYU Review of Employee Benefits
Samantha J. Prince, Employee Turnover & Partial Plan Terminations, 6 NYU Review of Employee Benefits 1 (2022).