Tuesday, February 16, 2021
This blogpost reviews the “partial termination” rules for certain tax-qualified retirement plans and certain regulatory and statutory rules that have, to the benefit of employers, relaxed the partial termination rules in 2020 and 2021.
The Partial Termination Rules
Retirement plans that are intended to be tax-qualified under Internal Revenue Code (the “Code”) Section 401(a) must comply with confusing, and sometimes costly, “partial termination” rules. Section 401(a) plans that must comply will include Section 401(k) plans, profit-sharing plans, money purchase pension plans and defined benefit pension plans (“Section 401(a) Plans”).
In general, a partial termination of a plan can occur if there is a significant reduction in the number of active participants in the plan during a particular plan year (see below). For example, a partial termination might occur because of a reduction in force or the sale of part of an ongoing busine