The Consolidated Appropriations Act was signed into law December 27, 2020, and included key provisions affecting retirement plans, including:
- Re-hiring of Employees: The bill permits employers who have recently laid off employees until March 31, 2021 to rehire them, thus avoiding the possibility of partial plan terminations. More specifically, a plan shall not be treated as having a partial termination “during any plan year which includes the period beginning on March 31, 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”.
- Qualified Disaster Distributions: An individual affected by a declared disaster and whose primary residence is located in a declared disaster area may be deemed qualified to take a “qualified disaster distribution” from his or her 401(k) or other qualified retirement plan on or after January 1, 2021 and before June 25, 2021. Such participants could potentially take up to $100,000 in aggregate across their retirement plan accounts without penalties. Income tax for such distributions can be spread over a three-year period and may be repaid into plans that permit rollovers within a three-year period.
- Qualified Plan Loans: Increased loan limits are also available to individuals affected by a declared disaster and whose primary residence is in a declared disaster area on or after December 27, 2020 and on or before June 25, 2021. The increased loan limit would increase from the lesser of $50,000 and 50% of the qualified individual’s vested loan balance to the lesser of $100,000 and 100% of the individual’s vested account balance. A qualified individual with an outstanding loan may delay repayment under certain conditions for one year if the due date of the outstanding loan is between “the first day of the incident period of a qualified disaster and 180 days after the last day of such incident period.” Repayments thereafter would need to be adjusted as well as interest accrued.
- Student Loan Repayment Provision Extension: The provision which allows employers to make annual tax-free contributions of up to $5,250 per employee for eligible education expenses (tuition or student loan assistance) without raising an employee’s gross taxable income has been extended through 2025. An uptick in adoption of this provision is expected among employers, as it is thought that many did not adopt it originally due to its brief availability (nine months under the original CARES Act). Student loan deferment will not be extended.
www.planadviser.com; December 28, 2020; December 31, 2020.
www.jdsupra.com; January 12, 2021.
www.sidley.com; January 11, 2021.