Pension & Benefits News IRS adds Q&A on coronavirus-related relief for retirement plans and IRAs
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Tuesday, August 25, 2020

IRS adds Q&A on coronavirus-related relief for retirement plans and IRAs

By Pension and Benefits Editorial Staff

The IRS has updated questions and answers (Q&As), originally released in May 2020, on coronavirus-related relief for retirement plans and IRAs by adding a Q&A. Section 2202 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136), enacted on March 27, 2020, provides for special distribution options and rollover rules for retirement plans and IRAs, and expands permissible loans from certain retirement plans.

In general, section 2202 of the CARES Act provides for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans (certain employer retirement plans, such as 401(k) and 403(b) plans, and IRAs) to qualified individuals, as well as special rollover rules with respect to such distributions. The CARES Act also increases the limit on the amount a qualified individual may borrow from an eligible retirement plan (not including an IRA) and permits a plan sponsor to provide qualified individuals up to an additional year to repay their plan loans.

The IRS has added a Q&A related to employees participating in an employer’s qualified retirement plan who are laid off because of COVID-19 and then rehired by the end of 2020. The question asks whether these employees are treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the plan occurred.

The IRS answers, generally no. Subject to the facts and circumstances of each case, participating employees generally are not treated as having an employer-initiated severance from employment for purposes of calculating the turnover rate used to help determine whether a partial termination has occurred during an applicable period, if they’re rehired by the end of that period. Thus, the IRS explains that participating employees terminated due to the COVID-19 pandemic and rehired by the end of 2020 generally would not be treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the retirement plan occurred during the 2020 plan year.

The IRS advises reviewing IRS Rev. Rul. 2007-43 for more information on partial terminations, including vesting rules, how to calculate the turnover rate for employer-initiated severances, the presumption that a turnover rate of at least 20% during an applicable period results in a partial termination, and how to determine the applicable period.

Source: IRS coronavirus-related relief for retirement plans and IRAs questions and answers.

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