The coronavirus relief includes a “temporary rule preventing partial plan terminations” for plan sponsors of defined contribution retirement plans. The provision specifically states, “A plan shall not be treated as having a partial termination (within the meaning of 4119(d)(3) of the Internal Revenue Code of 1986) during any plan year which 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 percent of the number of active participants covered by the plan on March 13, 2020.”
This provision allows defined contribution retirement plan sponsors to avoid the requirements that terminated participants must be 100% vested in plan benefits. Prior to the adoption of this provision, they would have triggered partial plan termination due to layoffs, furloughs, or terminations of employment if they experienced a reduction in eligible employees equal to, or exceeds the IRS’s 20% presumptive threshold. Ultimately though, the determination of partial plan termination is a facts and circumstances test.