PLANSPONSOR - April/May 2020 - 13

Layoffs or Furloughs? To the IRS, It Matters
AS REPORTS of employee layoffs and
furloughs increase, some people may
wonder, " What's the difference? "
" Companies tend to use the terms
interchangeably, which is why it can be
confusing, " says Lorie Maring, a partner
at Fisher Phillips.
Plan sponsors should keep in mind
that the IRS may consider that a partial
termination of the plan has occurred if
a company undergoes layoffs, but not
furloughs, sources say.
... the IRS
may consider
that a partial
termination of
the plan has
occurred if a
company undergoes
layoffs ...
The IRS views a partial plan termination
as a case where 20% or more of the
employees participating in the plan are
truly separated from employment in a plan
year, Maring says. Partial terminations
may occur in connection with a significant
corporate event such as a plant closing or
adverse economic or other conditions out
of the employer's control, the IRS says.
" A furlough is not intended to be a
permanent separation from work, " Maring
says. " A company might ask employees to
take a week off, or reduce the work week
from five days to four, as a way to avoid
a layoff. " With a layoff, employers may
intend for it to be temporary, hoping they
will rehire the workers, Maring says. But
what actually happens will determine if a
partial plan termination is triggered.
" In determining whether there could
be a partial termination of a plan resulting
from some form of an employee's separation
from service, the first thing you
need to examine is how the plan counts
an employee's service, " says Stephen
Ferszt, practice group leader for employee
benefits at Olshan Frome Wolosky. " Is it
counting actual hours of service performance?
Is it using an elapsed time method
or some other method? The IRS's bottomline
decision is based on an analysis of all
facts and circumstances. "
If the IRS does deem that a partial
TIDBITS
Distributions Permitted
COVID-19-related distributions of up to $100,000
per person, per year-if certain conditions
are certified-will be allowed for 403(b) and
governmental 457(b) plans, as well as 401(k)
plans, under the Coronavirus Aid, Relief and
Economic Security (CARES) Act.
PLANSPONSOR.com, Ask the Experts: Groom Law Group and Cammack Retirement Group
Act 'CARES' About Student Debt
* Coronavirus Aid, Relief and Economic Security
(CARES) Act Section 2206 lets employers put
$5,250, tax-free, toward workers' student loans
through the end of this year.
* Section 3513 empowers all borrowers
on federal repayment plans to suspend
payments through September 30.
PLANSPONSOR.COM April - May 2020 13
termination has occurred, says Kevin
Brown, a partner with McCarter &
English's employee benefits and executive
compensation practice, " the benefits to
the participants being terminated become
fully vested. If the company match and
profit-sharing contributions in the plan
were not vested, in the case of a termination,
they would be. " Accounts for participants
who voluntarily terminated during
the plan year also become 100% vested.
The employer must, therefore, determine
which participants require an acceleration
of vesting due to the partial termination,
the IRS notes. -Lee Barney
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PLANSPONSOR - April/May 2020

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