The Consolidated Appropriations Act, 2021 (the “CAA”), was signed into law on December 27, 2020, which is most widely discussed in the context of the $900 billion stimulus package, but also contains several retirement plan provisions intended to ease the administration of retirement plans during the COVID-19 pandemic. Additionally, on March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was enacted into law in order to address the continued impact of the pandemic on the economy and businesses. And on December 23, 2020, the IRS issued Notice 2021-03 extending the exemption of the physical presence requirement for witnessing spousal consent. Plan sponsors are encouraged to take advantage of the relief offered by the new legislation and regulatory guidance in the administration of their employee benefit plans.


Temporary Relief from Partial Terminations (CAA)
Effective December 27, 2020

The IRS has historically taken the position that a 20% or more employer-initiated turnover rate creates a rebuttable presumption that a partial termination has occurred under a retirement plan. The partial termination presumption may be rebutted with evidence, for example, that the turnover is routine based upon the operation of the plan sponsor’s business. A participation decline is significant because Section 411(d)(3) of the Internal Revenue Code (“Code”) requires that affected participants’ benefit entitlement be fully vested upon partial termination. The COVID-19 pandemic has resulted in the extraordinary impact on many industries and involuntary termination of employment and, absent IRS relief, would result in the unprecedented partial terminations of retirement plans. In order to provide relief, the CAA provides that a tax-qualified retirement plan will not be treated as experiencing a partial termination for any plan year including the period beginning March 13, 2020 and ending March 31, 2021 (“measurement period”), if the number of active participants on March 31, 2021, is at least 80% of the number of active participants covered on March 13, 2020. Thus, an employer who incurred layoffs but whose employment numbers rebound by March 31, 2021, will not require full vesting for terminated participants. Accordingly, employees who are laid-off and rehired during the measurement period are treated as active employees, preempting a partial termination and full-vesting.


Extension of Qualified Disaster Relief (CAA)
Effective December 27, 2020
Plan Amendment Deadline is December 31, 2022 for Calendar Year Plans (January 1, 2024 for governmental plans)

The CAA provides for a number of qualified disaster relief provisions that are similar to the provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted into law on March 27, 2020. Plan sponsors may, but are not required to, adopt these relief provisions. A “qualified disaster,” for CAA purposes, is any major disaster declared by the President under the Stafford Act during the period beginning January 1, 2020 and ending 60 days after the date of enactment of the CAA (February 25, 2021), excluding those areas where the only declared major disaster was by reason of the COVID-19 pandemic. The CAA relaxes retirement plan distribution rules to give participants more access to their funds and to provide penalty relief for distributions taken as a result of a disaster. Participants may take a qualified disaster distribution from an eligible retirement plan (e.g., 401(k) plan) of up to $100,000 without penalty or withholding, similar to the CARES Act distributions, as long as the amounts are distributed by June 25, 2021 (“QDD”). Those amounts are taxed ratably over a 3-year period, are eligible for rollover, and may be recontributed to the plan. A QDD also includes amounts distributed in connection with non-COVID disasters between December 28, 2019 and December 27, 2020, which are declared as a disaster under the Strafford Disaster Relief and Emergency Assistance Act. The CAA continues the loan and return of hardship distribution features implemented by the CARES Act. Retirement plan loans may be taken in amounts up to the lesser of $100,000 or 100% of vested account. Loan repayment may be suspended for up to one year. However, interest continues to accrue. Participant may also recontribute any hardship distributions initially taken to purchase or construct a principal residence in a qualified disaster area. A list of all major disaster declarations can be found at https://www.fema.gov/disasters/disaster-declarations.



ARPA Single Employer Pension Funding Relief
Plan Years After December 31, 2019

ARPA grants some funding relief to single-employer defined benefit pension plans in response to the financial distress caused by the COVID-19 pandemic, which has frustrated the efforts of defined benefit plan sponsors to comply with the minimum funding obligations under ERISA and the Code. ARPA amends Section 430(c) of the Code to extend the amortization period for certain funding shortfalls under the minimum funding requirements and resets certain prior shortfall amounts to zero. The shortfall amortization charge allows plans to spread the funding shortfalls over a certain number of years. ARPA has extended this period to 15 years and also sets all prior shortfall amounts to zero for plan years beginning after December 31, 2021 (or an earlier year as elected by the plan sponsor). Accordingly, the funding shortfall amount may be recalculated and spread over a longer time period.
Additionally, ARPA extends the funding stabilization changes that were enacted by Congress over the past 10 years that were scheduled to start phasing out in 2021. Under these funding rules, the interest rates used to determine the present value of plan liabilities are subject to maximum and minimum percentages, with the disparity gradually phasing out over time. ARPA shrinks the disparity between the two percentages and extends the period before the range begins to phase out, which stabilizes the funding calculations. ARPA also creates a 5% floor for the 25-year average of the interest rate that is subject to the minimum and maximum percentages. A decrease in the effective interest rate due to the floor decreases the present value of plan liabilities.
These changes are effective for plan years beginning after December 31, 2019, but a plan sponsor may elect to wait to apply the changes until 2021 or 2022.



IRS Notice 2021-03:Exemption for Physical Presence Requirements Continued
Effective January 1, 2021

Due to COVID-19 social distancing rules, plans are temporarily exempt from the physical presence requirements in the Code Section 401 regulations, in regard to participant elections required to be witnessed by a plan representative or notary public, including the spousal consent requirements under Code Section 417, as long as the requirement is met using electronic media as described below. The temporary exemption from the physical presence requirements was first announced in Notice 2020-42, which was set to expire at the end of 2020 but extended to June 30, 2021 by Notice 2021-03. The electronic media substitution requirements differ based upon whether a notary public or plan representative serves as a witness during the period beginning January 1, 2021, through June 30, 2021 (the “relief period”)

• Notary Public
  In the case of a participant election witnessed by a notary public during the relief period, the physical presence requirement is deemed satisfied for an electronic system that uses remote notarization if executed via live audio-video technology that otherwise satisfies the requirements for participant elections and is consistent with state law requirements that apply to the notary public.
  
  
• Plan Representative
  If witnessed by a plan representative during the relief period: (i) the individual signing the participant election must present a valid photo ID to the plan representative during the live audio-video conference; (ii) the live audio-video conference must allow for direct interaction between the individual and the plan representative, and not be prerecorded; (iii) the individual must transmit by fax or electronic means a legible copy of the signed document directly to the plan representative on the same date it was signed; and (iv) after receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative and transmit the signed document, including the acknowledgement, back to the individual.
  
  The Treasury Department and the IRS has invited comments relating to the temporary relief from the physical presence requirement in the Code Section 401 regulations. In particular, the Treasury Department and the IRS request comments on whether relief from the physical presence requirement should be made permanent and, if made permanent, what, if any, procedural safeguards are necessary in order to reduce the risk of fraud, spousal coercion, or other abuse in the absence of a physical presence requirement. Any permanent modification of the physical presence requirement in Treas.Reg.§ 1.401(a)- 21(d)(6)(i) would be made through the regulatory process that is subject to notice and comment. Thus, if the Treasury Department and IRS decide to propose modifying the physical presence requirement on a permanent basis, there will be additional opportunity for comment.

  Comments should be submitted in writing and should include a reference to Notice 2021-03 and may be submitted in one of two ways: (1) electronically via the Federal eRulemaking Portal at www.regulations.gov; or (2) by mail to: Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2021-03), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington D.C.20044.

  
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