COVID-19 and Partial Plan Terminations
In this ever-changing economy due to COVID-19, we are receiving many questions regarding layoffs, furloughs and terminations of employment and how they impact the company’s qualified retirement plan.
What is a partial plan termination?
- In general, if 20 percent or more of your employees terminate due to a downturn in business, a “partial plan termination” is likely to have occurred.
- There are nuanced rules regarding how you determine who is counted as a terminated employee.
- The result of a partial plan termination is that the terminated participants become 100% vested in their plan accounts. Participants who have not terminated who are on leave of absence or furlough are not included.
What are the consequences of not recognizing a partial plan termination?
If a partial termination occurs and the affected participants do not become 100% vested, terminated participants may be paid less than they are due. If this occurs, your plan has a qualification issue which would need to be addressed.
Please contact us if you have any questions about partial plan termination and if they apply to your situation.
Practices
Industries
April 2, 2020
By: Lisa A. Durham
In this ever-changing economy due to COVID-19, we are receiving many questions regarding layoffs, furloughs and terminations of employment and how they impact the company’s qualified retirement plan.
What is a partial plan termination?
- In general, if 20 percent or more of your employees terminate due to a downturn in business, a “partial plan termination” is likely to have occurred.
- There are nuanced rules regarding how you determine who is counted as a terminated employee.
- The result of a partial plan termination is that the terminated participants become 100% vested in their plan accounts. Participants who have not terminated who are on leave of absence or furlough are not included.
What are the consequences of not recognizing a partial plan termination?
If a partial termination occurs and the affected participants do not become 100% vested, terminated participants may be paid less than they are due. If this occurs, your plan has a qualification issue which would need to be addressed.
Please contact us if you have any questions about partial plan termination and if they apply to your situation.