--- title: Understanding the Impacts of Furloughs and Layoffs on Employee Benefit Plans description: As COVID-19 forces many employers to implement furloughs and layoffs, employee benefit plan expert John Neville explains the impacts of these decisions on benefit and retirement plans. image: https://www.crradvisors.com/hubfs/AdobeStock_348846002.jpeg --- [Skip to content](https://www.crradvisors.com/blog/understanding-the-impacts-of-furloughs-and-layoffs-on-employee-benefit-plans#main-content) [![CRR](https://www.crradvisors.com/hubfs/CRR.svg)Homepage](https://www.crradvisors.com) - [Home](https://www.crradvisors.com) - [Services](https://www.crradvisors.com/services) - [Audit & Assurance](https://www.crradvisors.com/services/accounting-auditing) - [Business Valuation](https://www.crradvisors.com/business-valuation) - [Client Accounting + Advisory Services](https://www.crradvisors.com/caas) - [Private Client Services](https://www.crradvisors.com/private-client-services) - [Tax for Businesses](https://www.crradvisors.com/tax-services-business) - [Tax for Individuals](https://www.crradvisors.com/tax-services-individual) - [Transaction Advisory](https://www.crradvisors.com/transaction-advisory-services) - [Industries](https://www.crradvisors.com/industries) - [Blog](https://www.crradvisors.com/blog) - [About Us](https://www.crradvisors.com/about-us) - [Team & Careers](https://www.crradvisors.com/about-us) - [CRR Charitable Foundation](https://www.crradvisors.com/crr-charitable-foundation) - [Contact](https://www.crradvisors.com/contact-us) - [Client Tools](https://www.crradvisors.com/client-portal) - [Home](https://www.crradvisors.com) - [Services](https://www.crradvisors.com/services) - [Audit & Assurance](https://www.crradvisors.com/services/accounting-auditing) - [Business Valuation](https://www.crradvisors.com/business-valuation) - [Client Accounting + Advisory Services](https://www.crradvisors.com/caas) - [Private Client Services](https://www.crradvisors.com/private-client-services) - [Tax for Businesses](https://www.crradvisors.com/tax-services-business) - [Tax for Individuals](https://www.crradvisors.com/tax-services-individual) - [Transaction Advisory](https://www.crradvisors.com/transaction-advisory-services) - [Industries](https://www.crradvisors.com/industries) - [Blog](https://www.crradvisors.com/blog) - [About Us](https://www.crradvisors.com/about-us) - [Team & Careers](https://www.crradvisors.com/about-us) - [CRR Charitable Foundation](https://www.crradvisors.com/crr-charitable-foundation) - [Contact](https://www.crradvisors.com/contact-us) - [Client Tools](https://www.crradvisors.com/client-portal) ![](https://www.crradvisors.com/hs-fs/hubfs/AdobeStock_348846002.jpeg?width=4414&height=2708&name=AdobeStock_348846002.jpeg) Accounting Business Advisory Employee Benefits # Understanding the Impacts of Furloughs and Layoffs on Employee Benefit Plans ![John Neville](https://www.crradvisors.com/hs-fs/hubfs/Images/Company_Photos/Headshots/Neville_John.png?width=48&height=48&name=Neville_John.png) John Neville October 5, 2020 Many employers have been forced to implement some form of workforce reduction in order to continue operating during the COVID-19 pandemic. While furloughs and layoffs have a significant and immediate impact on a company’s operations, plan sponsors also need to understand the longer-term effects that workforce reductions may have on participants’ benefits and retirement accounts. Over the next several months, employers should be mindful of their ongoing obligations and responsibilities as benefit plan sponsors. The following are key areas to consider: **Furloughs vs. Layoffs** Furloughs are very different from layoffs, and therefore have very different impacts on company benefit and retirement plans. A furloughed employee (one who is considered on unpaid temporary leave of service, with the expectation that they will eventually return to work) may continue to receive some or all of their benefits during their time away, including healthcare and retirement benefits. However, because furloughed employees aren’t receiving a paycheck, they won’t continue to contribute to their 401(k). Employers may decide to make non-elective plan contributions for furloughed employees — although many companies may find this difficult to do considering the current economic uncertainty.     By contrast, laid-off (terminated) employees who are no longer part of the company are not considered active members of a company’s retirement plan and therefore are unable to contribute to it. In general, laid-off employees can leave their 401(k) assets in the plan, cash out, or roll assets into another plan or individual retirement account (IRA). **Loans and Withdrawals During a Furlough** Plan sponsors should reference their plan document to understand what existing guidelines they have in place regarding employment status and loans and withdrawals. If the plan allows in-service loans and withdrawals, these options may be available to furloughed employees who meet the plan’s qualifications. The Coronavirus Aid, Relief, and Economic Security (CARES) Act gives employers the ability to allow qualifying participants (including furloughed employees) access to the lesser of $100,000 or 100 percent of their vested account balance. As always, plan documents can be amended to change the way loans operate. **Loan Repayments for Furloughed Employees** The CARES Act allows – but does not require - employers to extend current qualified plan loan repayments by up to 12 months; this provision applies to loans to furloughed employees, as well. Depending upon the terms of each plan, employees whose loans aren’t related to the virus may be required to repay their loans sooner if they are laid off. In addition, if the loan isn’t paid back on time, the participant’s loan balance will be considered in default and will become a taxable distribution. **Vesting Issues for Furloughed Employees** Some plans have vesting requirements that employees need to reach to have complete ownership of company matching contributions. Employers can define vesting in various ways, including based on a specific duration of time of employment or hours of service; however the maximum timeframe to vest is six years of full-time service.   A furlough may impact an employee’s vesting schedule as well. For plans that base vesting on hours of service, furloughed employees aren’t able to make progress toward such thresholds during a furlough because they are no longer working. For example, employees who need to have 1,000 hours of service to get to the next vesting level might not achieve that goal in 2020, depending on the length of the furlough. On the other hand, a duration of time vesting requirement isn’t affected by furloughs because these requirements are tied to when the employee starts and stops employment; the furlough time period counts toward this service requirement. **Plan Ahead and Communicate** Plan sponsors whose organizations have leveraged furloughs or layoffs to help stabilize cashflow should understand the implications of these decisions to ensure that the company meets its obligations to plan participants.   Clear and timely communication with plan participants is very important in this environment. Employers should be proactive in ensuring that they can reach employees on a consistent basis; this includes confirming that they have proper contact information for employees on file before and during reductions in force. Employers should also work with service providers to understand how they may help in tracking and communicating with plan participants.   Plan sponsors should consult with their plan advisors and benefits professionals to understand the retirement plan implications of furloughs and layoffs and meet obligations to employees after these weighty decisions are made. If you have any questions about how furloughs and layoffs may impact your employee benefit plans, leave a comment below, or feel free to contact me directly. ## Share this post [mailto:https%3A%2F%2Fwww.crradvisors.com%2Fblog%2Funderstanding-the-impacts-of-furloughs-and-layoffs-on-employee-benefit-plans](mailto:https%3A%2F%2Fwww.crradvisors.com%2Fblog%2Funderstanding-the-impacts-of-furloughs-and-layoffs-on-employee-benefit-plans) ## Keep reading ### [![](https://www.crradvisors.com/hs-fs/hubfs/AdobeStock_808994683.jpeg?width=4823&height=2412&name=AdobeStock_808994683.jpeg) Transaction Advisory Banks Banking What the SBA's New Quality of Earnings Rule Means for Your Next Deal](https://www.crradvisors.com/blog/what-the-sbas-new-quality-of-earnings-rule-means-for-your-next-deal) ### [![Staffing agency employees having a team meeting](https://www.crradvisors.com/hs-fs/hubfs/AdobeStock_1876259626.jpeg?width=7936&height=5291&name=AdobeStock_1876259626.jpeg) Staffing Staffing Series Week 4: What Staffing Agency Owners Should Know About the Work Opportunity Tax Credit (WOTC)](https://www.crradvisors.com/blog/staffing-series-week-4-what-staffing-agency-owners-should-know-about-the-work-opportunity-tax-credit-wotc) [![CRR](https://www.crradvisors.com/hubfs/CRR.svg "CRR")](https://www.crradvisors.com) *"CRR" is the brand name under which CRR, LLP and Bridgepoint Alliance, LLC, doing business as CRR Advisors, offer professional services to its respective clients in an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations, and professional standards. CRR, LLP is a licensed independent CPA firm that delivers attest services to its clients. CRR Advisors provides tax business consulting, and other non-attest services to their clients. Although it may employ CPAs, Bridgepoint Alliance, LLC is not a licensed CPA firm. The use of the terms “our firm,” “we,” and “us,” and similar language, may refer to CRR, LLP and CRR Advisors as it operates in its alternative practice structure.*       - [Home](https://www.crradvisors.com) - [Services](https://www.crradvisors.com/services) - [Industries](https://www.crradvisors.com/industries) - [Blog](https://www.crradvisors.com/blog) - [About Us](https://www.crradvisors.com/about-us) - [Contact](https://www.crradvisors.com/contact-us) - [Client Tools](https://www.crradvisors.com/client-portal) --- © 2025 CRR, LLP. All rights reserved.