News and Commentary

COVID-19 Relief Bill Temporarily Suspends Partial Termination Rules for 401(k) Sponsors By By Sean Deviney, CFP®

The Consolidations Appropriations Act of 2021, signed into law on Dec. 27, 2020, allows 401(k) plan sponsors to avoid triggering unintended partial plan terminations when they lay off more than 20 percent of their workforce between March 13, 2020, and March 31, 2021. This provision of the new law is welcome relief to the millions of employers who have been forced to terminate workers in the wake of the COVID-19 pandemic and the president’s subsequent national emergency declaration.

The first round of government-backed stimulus, signed into law in March as the Coronavirus Aid, Relief and Economic Security (CARES) Act, failed to address the IRS’s partial plan termination rules. Generally, when a company reduces its workforce by more than 20 percent during a plan year, a partial plan termination is triggered requiring all employees terminated during the year to become 100 percent vested in their employer contributions regardless of their tenure with the company. Failure to pay affected plan participants 100 percent of their promised employer-match and profit-sharing contributions, regardless of their actual vesting schedule, can expose employers to significant penalties and legal claims from plan participants whose employment was severed.

The new, $900 billion stimulus bill temporarily exempts employers from the partial plan termination rules when 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. This essentially gives employers three months to rehire or replace workers terminated during the COVID-19 pandemic without triggering a partial plan termination.

It is important to note that the active participant count is based on employees eligible for the plan as of March 31, 2021. Employers should review the eligibility provisions of their plan to determine if employees hired during the covered period are, in fact, eligible as of March 31st.

About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors + CPAs. For more information, call (954) 712-8888 or email

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Sean Deviney is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors. 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. 

The information contained in this report has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. 

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. 

* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.