Employee Turnover & Partial Plan Terminations

New York University Review on Employee Benefits and Executive Compensation

28 Pages Posted: 3 Aug 2022 Last revised: 6 Nov 2022

See all articles by Samantha J. Prince

Samantha J. Prince

Pennsylvania State University, Dickinson Law

Date Written: July 29, 2022


Who would have expected that a pandemic would bring Congressional awareness of an oft-overlooked concept called Partial Plan Terminations? Congress codified a temporary (and now expired) partial termination safe harbor for qualified retirement plans in the Consolidated Appropriations Act, 2021. This was necessary because qualified plans can experience a partial termination due to layoffs resulting from an economic downturn. The pandemic created such an upheaval for many businesses that without such relief, an overwhelming number of plans would have partially terminated. However, even with businesses reopening, the economy continues to be in flux, and this can portend more employee turnover.

It is important to understand the partial termination rules so that employers can recognize whether their plan has experienced one when they terminate employees. This article covers the mechanics of determining whether a plan has experienced a partial termination by defining the applicable time period, calculating turnover, and determining who the affected employees are that will become 100% vested if a plan termination has occurred. This article includes the safe harbor created by Section 209 of the Consolidated Appropriations Act from a short-term and long-term perspective. The article then highlights compliance methods and litigation concerns. Lastly, the article discusses the need for IRS guidance going forward.

Keywords: tax, qualified retirement plans, defined contribution plan, partial termination, partial plan termination, vesting, employee turnover, ERISA, IRS plan correction methods employee plans compliance resolution, employee benefits, 401k

Suggested Citation

Prince, Samantha J., Employee Turnover & Partial Plan Terminations (July 29, 2022). New York University Review on Employee Benefits and Executive Compensation, Available at SSRN: https://ssrn.com/abstract=4174355

Samantha J. Prince (Contact Author)

Pennsylvania State University, Dickinson Law ( email )

150 S College Street
Carlisle, PA 17013
United States

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