With mass layoffs commonplace during the COVID-19 pandemic, employers asked the Internal Revenue Service for advice on how to deal with the partial termination rule relating to employer contributions to their employees’ 401(k) workplace retirement accounts.
It’s an obscure issue, but it’s a big deal for the employees that it affects: It could mean thousands of dollars more credited to an employee’s 401(k) account. It’s also important that employers get it right. In a recent article by Forbes, McDermott Will & Emery partner Jeff Holdvogt advises that IRS auditors can catch this issue looking back at prior years.
“This is a complicated rule, and it’s not top of mind, so we could absolutely see employers realizing, ‘Hey, it turns out we incurred a partial termination. We have to go back and provide additional vesting,’” Holdvogt says.