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"Actual knowledge to the contrary"


austin3515
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Q11. May an administrator rely on an individual's certification that the individual is eligible to receive a coronavirus-related distribution?   

A11. The administrator of an eligible retirement plan may rely on an individual's certification that the individual satisfies the conditions to be a qualified individual in determining whether a distribution is a coronavirus-related distribution, unless the administrator has actual knowledge to the contrary. Although an administrator may rely on an individual's certification in making and reporting a distribution, the individual is entitled to treat the distribution as a coronavirus-related distribution for purposes of the individual's federal income tax return only if the individual actually meets the eligibility requirements.

 

From the IRS Q&A released today.

I actually think the standard has now been shifted to the plan administrator “must know for sure they qualify.”  The person either has a personal financial hardship that the Employer would 100% have first-hand knowledge of, or they or their spouse had COVID which an employer presumably would need to know for purposes of notifying co-workers about the need to quarantine, etc.  The Employer would presumably at least be obligated to ask WHEN they had COVID for that reason (was it long enough ago that others are at risk? Are you back to work and you should be at home?). 

Does anyone agree with me?

Austin Powers, CPA, QPA, ERPA

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No, I cant get there based on the Q&A.

It just means you cannot accept a statement you know to be false.  Actual knowledge to the contrary doesnt imply a duty to confirm.  Absence of a notification that an employee has been diagnosed (or spouse or dependent) isnt the same as as actual knowledge that there has not been a diagnosis, nor does it mean that you have to confirm/verify the diagnosis since you haven't been notified.  

You might want to verify for other reasons, but you are not required to for the distribution. 

 

 

 

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2 hours ago, austin3515 said:

From the IRS Q&A released today.

I actually think the standard has now been shifted to the plan administrator “must know for sure they qualify.”  The person either has a personal financial hardship that the Employer would 100% have first-hand knowledge of, or they or their spouse had COVID which an employer presumably would need to know for purposes of notifying co-workers about the need to quarantine, etc.  The Employer would presumably at least be obligated to ask WHEN they had COVID for that reason (was it long enough ago that others are at risk? Are you back to work and you should be at home?). 

Does anyone agree with me?

Nope; you are reading too much into it. Self certification will avoid any issues for the PA.  There is no way the PA can KNOW with certainty that an individual does NOT meet any of the qualifications for certification.  And when we get additional guidance from IRS/Treasury (which we will, and I venture soon), it will be even more clear that there is no way a PA can deny a claim when the participant certifies it.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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6 hours ago, austin3515 said:

From the IRS Q&A released today.

I actually think the standard has now been shifted to the plan administrator “must know for sure they qualify.”  The person either has a personal financial hardship that the Employer would 100% have first-hand knowledge of, or they or their spouse had COVID which an employer presumably would need to know for purposes of notifying co-workers about the need to quarantine, etc.  The Employer would presumably at least be obligated to ask WHEN they had COVID for that reason (was it long enough ago that others are at risk? Are you back to work and you should be at home?). 

Does anyone agree with me?

Not a chance.

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Take a small manufacturing company, 20 people, essential business.  Business is booming because they make cleaning supplies. Everyone is working overtime and making good money.

The plan administrator therefore has actual knowledge that they don't qualify for any of the "adverse financial consequences."  I guess part 1 is, do you agree with that?  Assume the person never missed any work, perfect attendance.

Then the next thing on the list you, your spouse or dependent was diagnosed with COVID.  The plan administrator better damn well know if that applies because you're coming into the office every day and working alongside all of my employees.

So under which of these circumstances would the plan administrator not have actual knowledge? 

And this is not some hypothetical. This quesiton has already come up more than once for me.  Think of your own businesses and how well you know your own employees.  I know that I or one of my partners would have actual knowledge to the contrary if someone was lying about qualifying for the precise reasons listed above.

Austin Powers, CPA, QPA, ERPA

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7 hours ago, Larry Starr said:

Self certification will avoid any issues for the PA. 

According the IRS's own Q&A thats not a true statement.  They published on their website that it would not be enough if they had actual knowledge to the cotnrary.  I also agree that the statute doesn't say so, but unless I'm mistaken (I looked) the "actual knowledge to the contrary" rule is not found in the statute for hardships either.  It is true that it is in a regulation but a regulation is just a formalized administrative policy.  This is an informal administrative policy.

 

8 hours ago, Larry Starr said:

There is no way the PA can KNOW with certainty that an individual does NOT meet any of the qualifications for certification

Microsoft has some cover here on this.  Small business owners -- not so much.  the smaller the business the more implausible.  I won't speak for you, but I know I would know.

Austin Powers, CPA, QPA, ERPA

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19 minutes ago, austin3515 said:

Take a small manufacturing company, 20 people, essential business.  Business is booming because they make cleaning supplies. Everyone is working overtime and making good money.

The plan administrator therefore has actual knowledge that they don't qualify for any of the "adverse financial consequences."  I guess part 1 is, do you agree with that?  Assume the person never missed any work, perfect attendance.

 

Take just this part of the example.  What if their spouse was laid off due to the virus?   Hasn't this person had an adverse financial consequence due to the virus?  

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Nope, and the IRS Q&A makes that pretty clear as well I think.  They added the word "You" to the beginning of everything I think to make it clear what their interpretation is (I think its consistent with the plain reading of the statute but it does go a step further reminding us that it is just "YOU". 

I've tried to find some strained interpretation that might say that my spouse being laid off is my adverse consequence but it just isn't there in my opinion.  The only way I once got there was when I said "well hey, it's the employee making the certification, so it is their interpretation that matters even though I think its wrong"  I don;t think that's the case anymore.

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Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

 

 

Austin Powers, CPA, QPA, ERPA

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(B) EMPLOYEE CERTIFICATION.—The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions of subparagraph
(A)(ii) in determining whether any distribution is a coronavirus-related distribution.

I just went back into the statute to look up something for my last post and took another gander at this language.  I seriously think the IRS blew this one.  The intent of Congress was clear.  Leave the plan administrator out of this; they have bigger things to worry about than this.  It's just 9 months of opening the gates.  If someone lies that's on them.

It also reminds me of the old dilemma of "We wish the IRS would provide clarification on this!"  People who have been around long enough know that often times when guidance comes up we would have greatly preferred working in the realm of good faith interpretation.  This is definitely one of those times.

Austin Powers, CPA, QPA, ERPA

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Austin - I have to say I agree with the previous posters. While I grant that a very small employer would generally "know" that most of these statements were PROBABLY not applicable, there are certainly circumstances where you might THINK you "know" when you really don't. For example, suppose your business partner was diagnosed with Covid, but did NOT disclose this to you? I realize this raises other serious issues, but for purposes of the certification, you don't KNOW. Another situation that comes to mind is a dependent.

"Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;"  - again, MAYBE their spouse got diagnosed and they have not told you, for fear of adverse consequences such as being forced to stay at home and miss work. MAYBE they have  a dependent that you don't know about - a child from an illicit affair, etc., etc...

I suppose I can see your point, if an active employee sends you an e-mail and says, "I want a Covid distribution because I've been laid off" and the employee is still working for you every day, then yes, in such a situation, I'd refuse to accept a self-certification. But other than a completely ridiculous situation like that, I feel very confident that the Plan Administrator is allowed to accept self-certification without a second thought.

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You are correct that spouse being laid off does not qualify.  I would be very surprised if the IRS didnt add that when they issue guidance though.  

That said, you are reading way too much into what the "Administrstor must know". An employee could have a second job, so the admin would only know that hours had not been reduced with the employer.  Another employer still qualifies.

I'll double down on "you don't know what you dont know".  Just because the employer has not been notified that the employee or employees spouse/dependent has been diagnosed, does NOT mean that the employer had actual knowledge that a diagnosis has not been made.

Actual knowledge to the contrary is like knowing the employees house didnt burn down because he lives in your spare bedroom.

 

 

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I can only say it appears that the IRS disagrees with you all.  Why add the qualifier if there was no possibility of actual knowledge to the contrary?

Here is another thing.  A lot of providers decided not to go through any sponsor approval.  It seems to me that must now be revised to require a sign off so that the sponsor now has to sign off.  And I think it's not unrealistic to presume that plan sponsors will be uncomfortable saying that they don't have "actual knowledge to the contrary" when they do.  How do you advise a client who says "What should I do? I know this guy doesn;t qualify?"   Do you say "I know you think you know, but you don;t know."  The client comes back and says "No seriously, I know this person. I work with them every day. Closely.  I know this is not true.  Are you advising to sign this anyway even though I do have knowledge to the contrary?"  Do you respond and say "Yes that's what I am suggesting."?  I doubt that...  This is a very realistic conversation  in the context of a small business.  I have already had this exact conversation.  I have to answer that question differently after this Q&A then I did before.

 

 

Austin Powers, CPA, QPA, ERPA

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We will have to agree to disagree.  In 99% of cases, I just don't think the sponsor will have actual knowledge.  

Also, just because sponsor may rely on participant certification, it doesn't prevent them from verifying the claim if they really think the participant is lying.

 

 

 

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11 minutes ago, austin3515 said:

I have to answer that question differently after this Q&A then I did before.

I agree with that.  I don't think that means you have to ask if you're not sure though. 

I have to ask, why are businesses that are not affected adopting Covid provisions?  Except for loan suspensions, which are fairly harmless, we are generally discouraging CRDs and CRLs.  

Ed Snyder

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2 minutes ago, Bird said:

I agree with that.  I don't think that means you have to ask if you're not sure though. 

I have to ask, why are businesses that are not affected adopting Covid provisions?  Except for loan suspensions, which are fairly harmless, we are generally discouraging CRDs and CRLs.  

The majority of my clients have not adopted CRDs or CRLs.  Those that did were affected to some degree, from business slowing down to being shut down completely. 

 

 

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We have individuals who are claiming to be QI (and would accept their self-certification as such) who want to rollover their account balances. This is one situation that seems to me to be something the Plan Administrator can, or should, deny. Any thoughts? Thanks

 

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6 hours ago, austin3515 said:

I have a client where 75% of the staff was laid off/furloughed.  Butt hen again 25% were not.  So its not irrelevant in any event.

I am quite willing to bet that the additional guidance that is coming will expand the definition substantially.  Neither IRS nor Treasury  nor Congress nor the White House want to be in the business of trying to figure out who is affected and how. That's why they put the self-certification in the law in the first place.  IF I have a client who actually adopts CRD language (I don't expect very many), then they will simply get a signed statement from the participant that says "I certify that I am a qualified individual for purposes of section 2202 of the CARES Act to receive a Coronavirus Related Distribution".  QED. The PA is done.

I guarantee it is NOT possible for a PA to SWEAR/Certify that they know everything about the individual so that they can conclude the individual is not CRD eligible.  Just not possible to prove a negative.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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6 hours ago, Larry Starr said:

I am quite willing to bet that the additional guidance that is coming will expand the definition substantially.  Neither IRS nor Treasury  nor Congress nor the White House want to be in the business of trying to figure out who is affected and how. That's why they put the self-certification in the law in the first place.  IF I have a client who actually adopts CRD language (I don't expect very many), then they will simply get a signed statement from the participant that says "I certify that I am a qualified individual for purposes of section 2202 of the CARES Act to receive a Coronavirus Related Distribution".  QED. The PA is done.

I guarantee it is NOT possible for a PA to SWEAR/Certify that they know everything about the individual so that they can conclude the individual is not CRD eligible.  Just not possible to prove a negative.

It is, but is rare. It is almost but not quite blood diamond rare. Take the case of the drunken party where the employee blurts out they committed fraud when submitting the application. That might give me pause.

[Edited to express original intent.]

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8 hours ago, Belgarath said:

Austin - I have to say I agree with the previous posters. While I grant that a very small employer would generally "know" that most of these statements were PROBABLY not applicable, there are certainly circumstances where you might THINK you "know" when you really don't. For example, suppose your business partner was diagnosed with Covid, but did NOT disclose this to you? I realize this raises other serious issues, but for purposes of the certification, you don't KNOW. Another situation that comes to mind is a dependent.

"Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;"  - again, MAYBE their spouse got diagnosed and they have not told you, for fear of adverse consequences such as being forced to stay at home and miss work. MAYBE they have  a dependent that you don't know about - a child from an illicit affair, etc., etc...

I suppose I can see your point, if an active employee sends you an e-mail and says, "I want a Covid distribution because I've been laid off" and the employee is still working for you every day, then yes, in such a situation, I'd refuse to accept a self-certification. But other than a completely ridiculous situation like that, I feel very confident that the Plan Administrator is allowed to accept self-certification without a second thought.

IF my plan allowed CRD, then my response to the participant is: "That does not qualify, but here are the things that do. If you can certify that you are eligible, that  is what we need to make the distribution.  See attached self-certification form and sign and return to us if you qualify".  I (my client) never had to deal with the qualification rules; it's always on the participant.  If they lie, they lie.  But no one is going to check.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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6 minutes ago, Kac1214 said:

We have individuals who are claiming to be QI (and would accept their self-certification as such) who want to rollover their account balances. This is one situation that seems to me to be something the Plan Administrator can, or should, deny. Any thoughts? Thanks

 

Coronavirus-related distributions are exempt from the requirement to allow direct rollover. Most of the provider forms I have seen so far don't even have a spot to enter rollover info.

What is the participant trying to accomplish in this case? Rollovers are already exempt from the excise tax under 72(t), and not includable in income, so why bother with the qualified individual certification?

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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30 minutes ago, Mike Preston said:

It is, but is rare. It is almost but not quite blood diamond take the case of the drunken party where the employee blurts out they committed fraud when submitting the application. That might give me pause.

Me too; I would pause for a minute, give him the form to sign, and then the pause is all over!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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29 minutes ago, C. B. Zeller said:

Coronavirus-related distributions are exempt from the requirement to allow direct rollover. Most of the provider forms I have seen so far don't even have a spot to enter rollover info.

What is the participant trying to accomplish in this case? Rollovers are already exempt from the excise tax under 72(t), and not includable in income, so why bother with the qualified individual certification?

Kac1214You don't have to and shouldn't be trying to get into the participant's head. That's why we have self-certification.  If he wants to roll it over, he can.  If he wants to take it in cash he can. If the plan wants to adopt CRD's it can, and they CAN be rolled over if the participant wants; maybe he's got enough cash for a couple of months and wants to warehouse the dollars until he needs to spend them. In any case, "I'm an educated man, but I'm afraid I can't speak intelligently about the travel habits of William Santiago" which is to say you have no idea why he wants to do that and it isn't up to you to figure it out since self-certification solves all that.  Take YES for an answer. (If anybody doesn't get the reference, please watch A Few Good Men.)

 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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34 minutes ago, Kac1214 said:

C.B. - Thanks for the info. I will have the Admin check the form.  All we can figure is they what to self direct the $1400 they have in their account

 

If the form doesn't reflect what is supposed to happen, change the form or use a different one.  The "forms" are NEVER supposed to drive the plan operation; they are there to SERVE the plan operation.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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