On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021 (“Act”), a spending bill that added $ 900 billion in stimulus aid for the COVID-19 pandemic with a $ 1.4 trillion bulk spending bill. Dollars combined for the 2021 federal financial year. President Trump signed the law on December 27, 2020.
Highlights of the provisions relevant to retirement provision
- Ensures that the coronavirus-related distributions in accordance with the Coronavirus Relief, Relief, and Economic Security Act (“CARES Act”) can apply to cash purchase pension plans.
- Offers qualified disaster distributions, increased credit limits, and delayed loan repayments for individuals in qualified disaster areas, but expressly excludes disaster statements that relate only to COVID-19.
- Does not Expansion of distributions in connection with the coronavirus and loan facilities under the CARES Act.
- These retirement provisions are optional. However, if a plan sponsor elects to adopt these terms, they must coordinate with their external administrator to establish procedures for proper plan management and notify affected eligible employees.
A closer look
Below you will find the most important provisions of the Act on Pension Provision:
- Extension of the repayment period for deferred social security deductions. According to IRS Notice 2020-65, issued August 8, 2020, employers were allowed to defer withholding and paying the employee’s portion of social security tax if the employee’s wages were below a certain amount generally applicable to wages received on August 1, 2020. September 2020 were paid until December 31, 2020. Employers who accrued employee taxes had to withhold the accrued amounts between January 1, 2021 and April 30, 2021 “proportionally” from the employee wages concerned. All accrued amounts were to be repaid by May 1, 2021 to avoid interest and penalties. The law extends the period for withholding deferred taxes from April 30, 2021 to December 31, 2021 and the period for repaying all deferred amounts from May 1, 2021 to January 1, 2022.
- Application of the provisions of the CARES Act to pension plans for cash purchases. Pursuant to CARES Act and IRS Notice 2020-50, cash purchase pension plans could not make part-time distributions related to coronavirus. The act amends the CARES Act to allow for a coronavirus-related payout as an on-the-job withdrawal from a cash purchase annuity plan that is effective as if it had been included in the enactment of the CARES Act. The regulation would also apply to recipients of money purchase pensions to which a legally permissible distribution was made in 2020 (e.g.
This change will be made retrospectively to the entry into force of the CARES Act, as the deadline for distributions in connection with coronaviruses is on the 30th of service coronavirus-related distributions.
- Qualified disaster distributions. The law provides for “Qualified Disaster Distributions” (“QDDs”) from “Eligible Pension Plans”. QDDs are treated like other types of previous disaster distributions for forest fires, hurricanes, and other natural disasters and include the coronavirus-related distributions that were allowed under CARES law (ie, they are exempt from the 10% early repayment penalty, included in the income proportionately over 3 years, can be repaid, etc.). A QDD is a distribution from an Eligible Pension Plan that is made to a Qualified Person on or after the first day of the Qualified Disaster Period and before June 25, 2021.
- Eligible retirement plan. An “Eligible Retirement Plan” is one that is described in Code Section 402 (c) (8) (B). This includes an IRA, a qualifying plan, a 403 (b) plan, and a state 457 (b) eligible deferred compensation plan. This also includes a retirement plan for cash purchases.
- Qualified disaster area. A “Qualified Disaster Area” means any area in which a major disaster has been declared by the President under Section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act between January 1, 2020 and February 25, 2021, if the “Event Period “The disaster begins on or after December 28, 2019 and on or before December 27, 2020.
- Event period. The term “Event Period” means the period specified by the Federal Emergency Management Agency as the period during which the disaster occurred.
- Qualified person. A “qualified person” is a person whose primary residence is in the qualified disaster area at all times during the event period and who suffers economic damage as a result of the disaster.
A “qualified disaster area” does not include all areas for which a major disaster has been declared due to COVID-19 only. A list of the disasters declared by the federal government is available at https://www.fema.gov/disasters/disaster-declarations. QDDs from Eligible Pension Plans are capped at a total of $ 100,000 per year with no penalty or withholding, minus any other QDDs received for previous taxable years. However, this limit applies separately to each qualified disaster.
- Exemption from the 10% early repayment penalty. Qualified disaster distribution is exempt from the 10% premature distribution penalty.
- Repayment of qualified disaster distributions. Individuals can repay QDDs during the 3-year period immediately following receipt of the QDD. Repayments must be made to an eligible retirement plan into which the individual could make a direct rollover contribution to the distribution.
- Income inclusion over a three-year period. Unless the individual chooses otherwise, QDDs will be proportionately taken into account in gross income over the 3-year period starting with the year of distribution, unless the Qualified Individual chooses otherwise.
- Exception to the rollover notice and the retention rules. QDDs are not “qualifying rollover distributions” for the purposes of the Code that apply to direct rollovers, rollover notices, and tax withholding.
- New contribution of qualified sales for home purchases. The law allows individuals receiving “qualifying distributions” to repay the distributions during the “Applicable Period” into an eligible retirement plan to which the individual could make a rollover contribution.
- Qualified sales. A “qualified distribution” is a hardship distribution on a 401 (k) or 403 (b) plan or on a first time home purchase under Code Section 72
- Applicable period. The “Applicable Period” means the period beginning on the first day of the Disaster Event Period and ending June 25, 2021. The repayment must be made to an eligible retirement plan that is eligible and eligible for rollover contributions.
- Increased credit limits and delayed repayments on certain disaster-related loans.
- Increased credit limit. The law increases the credit limit on all loans from a Qualified Employer Plan (as defined in Code Section 72 (p) (4)) to a Qualified Person (as defined above) between December 27, 2020 and June 25 The Loan Limit will be increased by (1) increasing the dollar limit from $ 50,000 to $ 100,000 and (2) increasing the percentage limit from half to the full present value of the employee’s vested accrued benefit.
- Late repayment. A Qualified Person with an outstanding loan from a Qualified Employer Plan during a Qualified Disaster may delay any repayment due between the start of the Event Period and up to 180 days after the Event Period. The due date will be postponed by one year or until June 25, 2021, if later. This loan facilitation is similar to the loan provisions of the CARES Act.
- Later repayments will be adjusted to reflect the late repayment date and any interest accrued during such delay.
- When determining the 5-year period and the term of a loan, the delay in payment is not taken into account.
The law does not specifically allow a plan to rely on an individual to provide self-certification of eligibility as a “qualified person” for loan facilitation. The rules for qualified disaster assistance are optional according to the law and plan promoters have until December 31, 2022 (for calendar year plans) to change the pension plans for this assistance (state plans have to change until December 31, 2024). For a plan with a fiscal year on July 1, the deadline would be June 30, 2023 (government plans would be June 30, 2025).
- 420 (f) transfers. Code Section 420 allows “Qualified Future Transfers” from a retirement plan to a retiree health insurance account if certain conditions are met, including meeting certain funding standards of the retirement plan. In view of the significant market volatility problems in the past year, the law provides for a one-time election to end an existing transfer period under certain conditions.
- Age of the in-service distribution for certain employees in plans of several employers. Code Section 401 (a) (36) reduces the working age from 59 ½ years to 55 years for certain construction and construction workers participating in a Community Plan.
- Provisional partial plan termination rule. In general, although the determination of whether a partial plan has been terminated is based on the facts and circumstances of the particular situation, a reduction in the number of insured participants by more than 20% during a plan year is deemed to be a partial plan termination by the IRS.
The IRS recognizes that significant downsizing due to the pandemic may be temporary, and it is for this reason that the law provides temporary relief so that a retirement plan will not be treated as a partial termination of the plan if the number of active participants in the plan falls on Dec. March 2021 is at least 80 percent of the number of active participants who fell under the plan on March 13, 2020. The provision applies to each plan year that spans the period from March 13, 2020 to March 31, 2021.