IRS Clarifies Partial Plan Termination Relief Under 2020 Legislation

On April 27, the Internal Revenue Service ("IRS") issued informal guidance on partial plan terminations as part of the COVID-related tax relief provided under The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the "Relief Act"), part of the Consolidated Appropriations Act of 2021.  The Relief Act was intended to provide a measure of relief for qualified plan sponsors that experienced layoffs due to COVID-19.

The layoff of a significant number of employees could cause a plan to incur a partial plan termination.  Section 209 of the Relief Act provided a temporary rule that may allow a plan to avoid triggering a partial plan termination for 2020 and 2021.  The provision modified the current partial plan termination rules to ensure such termination does not occur if the active participant count as of March 31, 2021 was at least 80% of the number of active participants covered by the plan on March 13, 2020.  IRS guidance, in the form of Questions and Answers,