The funding bill passed by Congress in late December 2020 included temporary relief from partial plan terminations for sponsors of qualified retirement plans if certain conditions are met1. The law is intended to help plan sponsors with temporarily reduced workforces due to the COVID-19 pandemic that would have otherwise resulted in partial plan terminations, who sufficiently increase their plan participation by March 31, 2021.

A partial plan termination is typically triggered if the number of plan participants decreases by more than 20% during a plan year. A partial plan termination requires full vesting of the accounts of all participants affected by the partial plan termination.

The relief provided under the new law temporarily provides that a plan does not have a partial plan termination during any plan year which includes the period from March 13, 2020 through March 31, 2021 as long as the number of participants covered by the plan on March 31, 2021 is equal to at least 80% of the number of participants covered by the plan on March 13, 2020.

For example, under this temporary relief, if a calendar year plan has 100 participants as of January 1, 2020, and 75 participants as of December 31, 2020 (a 25% reduction that would typically trigger a partial plan termination), it does not experience a partial plan termination for the 2020 plan year if it has 100 participants on March 13, 2020 and 80 or more participants as of March 31, 2021.

This relief requires that the rehires be active plan participants by March 31, 2021, so plan eligibility requirements must be considered in applying the relief.

Although this relief is welcome, some operational questions remain, particularly for plans that are eligible for the relief but who have already made a determination of a partial plan termination and have or are receiving requests to distribute benefits to participants prior to March 31, 2021.

For example, the law does not clarify whether additional amounts already distributed to participants as a result of a partial plan termination would constitute overpayments, or whether a vesting schedule could be re-applied retroactively to participants who were notified that they were fully vested but have not yet taken a full distribution.

In addition, it is not clear whether a plan that would have a partial plan termination absent this relief can delay distributions (or at least distributions of additional vested amounts) until it determines whether the partial plan termination relief will apply on March 31, 2021.


1.The full text of the relevant Section states: "A plan shall not be treated as having a partial termination (within the meaning of 411(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." Continuing Appropriations Act, 2021 and Other Extensions Act, Division EE – Taxpayer and Certainty Disaster Tax Relief Act of 2020, Title II, Section 209.

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