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"Actual knowledge to the contrary"


austin3515
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Larry (and others I guess) your position baiscally boils down to it is impossible to have actual knowledge to the contrary even though the IRS bothered to clarify that actual knowledge to the contrary would be a basis for denail.  Do I have that right?

Austin Powers, CPA, QPA, ERPA

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1 hour ago, austin3515 said:

Larry (and others I guess) your position baiscally boils down to it is impossible to have actual knowledge to the contrary even though the IRS bothered to clarify that actual knowledge to the contrary would be a basis for denail.  Do I have that right?

I wouldnt say impossible, but it's rare.  Even if we increase the odds of having actual knowledge to the contrary, nothing in the IRS Q&A states or implies a duty to question or verify.  Unless you know they are lying when they make the statement, you dont have actual knowledge to the contrary and you may rely on participant certification.  Dont ask dont tell works fine for CRDs

 

 

 

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4 minutes ago, RatherBeGolfing said:

  Unless you know they are lying when they make the statement,

Well golly gee willikers that's my whole darn point.  They know they;re lying!  They know the person and they know none of these things has happened to them.  Remember I am talking small business here.  We know when someone has a cold for crying out loud.  We would know if their wife had COVID.

Austin Powers, CPA, QPA, ERPA

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35 minutes ago, austin3515 said:

Well golly gee willikers that's my whole darn point.  They know they;re lying!  They know the person and they know none of these things has happened to them.  Remember I am talking small business here.  We know when someone has a cold for crying out loud.  We would know if their wife had COVID.

But we might not know that (generous) Bob has been supporting his father for years (Bob doesn't ever feel the need to share that information) and who just happens to be diagnosed with CV.

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1 hour ago, austin3515 said:

OK I give up.  For those clients who say they know I'll tell them Larry Starr and Mike Preston say you're mistaken ?.  

Austin, in the example you gave where the employee does not represent that either he or she or spouse or depending had COVID, so that the only grounds for being qualified is negative effect on employment, and the employer knows the employee has had no negative impact on his or her own employment on account of COVID, then presumably that would be the sort of thing the IRS had in mind as the exception when you could not rely on the certification. But as RatherBeGolfing noted, that is going to be a very rare situation. Actually, even there you might not know, because some folks work two jobs to make ends meet.

The harder question for me is what if the participant's only grounds for being negatively affected is a 10% reduction in hours, which the employer know about, because the employer did it. I'm  thinking that is adverse enough, but some might differ. Also, note that apparently until their is guidance otherwise from IRS, a 10% reduction in hours might be enough (because statute refers to reduction in hours),  but a 10% pay cut would not be (because statute does not refer to pay cuts).

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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I guess another question that is begged here is whether the participant's certification just says the equivalent of, "Yeah. I read them and I satisfy one of them," or he or she must check a box specifying which one. The former would virtually eliminate the plan administrator's ever having knowledge that the representation was untrue. Oddly, the statute (2202(a)(4)(B)) would tend to support the former interpretation, because it says the participant must certify that he or she "satisfies the conditions [for getting a CARES Act distribution]," not that he or she satisfies one, or at least one, of them. But that support is weak because the most literal interpretation of the language would in effect turn the "or" at the end of 2202(a)(4)(A)(ii)(II) into "and," and that is clearly not right.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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7 hours ago, Luke Bailey said:

I guess another question that is begged here is whether the participant's certification just says the equivalent of, "Yeah. I read them and I satisfy one of them," or he or she must check a box specifying which one. 

FWIW, I think every form I have seen just lists the requirements for a qualified individual, and then has the participant certify that he or she is a certified individual.  I do not believe I have seen one that requires the participant to certify which requirement they actually meet.

 

 

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9 hours ago, Luke Bailey said:

I guess another question that is begged here is whether the participant's certification just says the equivalent of, "Yeah. I read them and I satisfy one of them," or he or she must check a box specifying which one. The former would virtually eliminate the plan administrator's ever having knowledge that the representation was untrue. Oddly, the statute (2202(a)(4)(B)) would tend to support the former interpretation, because it says the participant must certify that he or she "satisfies the conditions [for getting a CARES Act distribution]," not that he or she satisfies one, or at least one, of them. But that support is weak because the most literal interpretation of the language would in effect turn the "or" at the end of 2202(a)(4)(A)(ii)(II) into "and," and that is clearly not right.

Several things: first, I have said in several threads that the participant certification is going to be "I certify that I am eligible for a CRD" and that's it.  No check the boxes, no need for the PA to "guess" if the participant actually meets one or more of the conditions.  It's just that easy.

Second, please read this about "begging the question"; one of my  pet peeves.  https://www.logicallyfallacious.com/logicalfallacies/Begging-the-Question

It doesn't "beg the question"; it RAISES the question.  Almost never will you be correct in using "begging the question" unless you are truly making the logical fallacy argument in the citation.

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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13 hours ago, austin3515 said:

OK I give up.  For those clients who say they know I'll tell them Larry Starr and Mike Preston say you're mistaken ?.  

And you would finally be right!?

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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14 hours ago, austin3515 said:

OK I give up.  For those clients who say they know I'll tell them Larry Starr and Mike Preston say you're mistaken ?.  

I would remind this client that, while they would be within their rights as Plan Administrator to deny the request if they believe the participant is not eligible, remember that plan benefits, including availability and timing of distributions, must be definitely determinable and not subject to administrator discretion. If they are going to deny the request, they better have a damn good reason, and, preferably, documentation supporting their decision. Given that the law explicitly allows the Plan Administrator to rely on the participant's certification, it seems like a very aggressive position to deny that certification. I would be concerned that a Plan Administrator taking this position would be exposing themselves to unnecessary liability.

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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3 hours ago, C. B. Zeller said:

I would remind this client that, while they would be within their rights as Plan Administrator to deny the request if they believe the participant is not eligible, remember that plan benefits, including availability and timing of distributions, must be definitely determinable and not subject to administrator discretion. If they are going to deny the request, they better have a damn good reason, and, preferably, documentation supporting their decision. Given that the law explicitly allows the Plan Administrator to rely on the participant's certification, it seems like a very aggressive position to deny that certification. I would be concerned that a Plan Administrator taking this position would be exposing themselves to unnecessary liability.

I think the standard is not just to "believe the participant is not eligible."  I think the standard as stated in official guidance is much more in the direction of firsthand knowledge, or some sort.  I'm running out the door or I'd look it up. 

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3 hours ago, C. B. Zeller said:

Given that the law explicitly allows the Plan Administrator to rely on the participant's certification, it seems like a very aggressive position to deny that certification.

We were all on the same page based on the law.  But there have been "developments" in the form of published IRS guidance.

Austin Powers, CPA, QPA, ERPA

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7 minutes ago, RatherBeGolfing said:

Did anything really change though? Did the law actually have to state that you cannot rely on a statement you know to be false?

A point of context here is that many providers did not even require the administrator to sign the form.  So if the participant was lying they would never have known.  Surely that has to change now.

Austin Powers, CPA, QPA, ERPA

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3 minutes ago, RatherBeGolfing said:

Did anything really change though? Did the law actually have to state that you cannot rely on a statement you know to be false?

Maybe Derrin will talk about the Q&A in an hour...

There is legal precedent that bears on your question.  It was Delta airlines that "knew" various pilots were going through with sham divorces to gain early access to retirement plan benefits and therefore took the opportunity to fire some of those pilots.  Long story short is the the courts and the DOL basically said Delta had no duty or even right to challenge a divorce's quality.

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22 minutes ago, Mike Preston said:

There is legal precedent that bears on your question.  It was Delta airlines that "knew" various pilots were going through with sham divorces to gain early access to retirement plan benefits and therefore took the opportunity to fire some of those pilots.  Long story short is the the courts and the DOL basically said Delta had no duty or even right to challenge a divorce's quality.

Yea I know what you are referring to, but I dont know if denying an employee certification and refusing to qualify a DRO are really comparable.

I see where you are coming from though

 

 

 

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On ‎5‎/‎6‎/‎2020 at 8:28 AM, Larry Starr said:

Second, please read this about "begging the question"; one of my  pet peeves.  https://www.logicallyfallacious.com/logicalfallacies/Begging-the-Question

BTW Larry, yesterday evening I Googled this. If you are interested in a more inclusive, contemporary take, you can check this out: https://www.merriam-webster.com/words-at-play/beg-the-question

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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23 hours ago, Mike Preston said:

There is legal precedent that bears on your question.  It was Delta airlines that "knew" various pilots were going through with sham divorces to gain early access to retirement plan benefits and therefore took the opportunity to fire some of those pilots.  Long story short is the the courts and the DOL basically said Delta had no duty or even right to challenge a divorce's quality.

I think there is difference between that situation and the one at hand.  In the "Delta Divorce" cases, there was, in fact, a state court's judgment that granted the divorce, under state law.  The issue with respect to the plan's concern that the divorce was a sham to get money out of the plan was irrelevant, because under state law, the divorce occurred.

Anyone care to comment on whether the IRS has the "authority" to actually expand the statutory language by imposing this condition?  I worked once with an attorney who went before the SCOTUS with the argument that the "IRS' position is but one interpretation of the law, and not necessarily the correct one."  He won that case, and as a result equalized the rules applied to corporate entities and partnerships (O'Neill vs. someone, 1969).

I'm not advocating "poking the IRS bear," but the statute isn't ambiguous, or unclear.  Same would apply to why they said 12/30 was the last day for CRDs when the statute says "within the taxable year" (and last time I checked, 12/31 was within the taxable year.)

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As an additional question to this topic - is there any guidance (other than less than $100,000) to the amount an employee can request for a COVID distribution, assuming they are "affected" and the provisions have been adopted?  For example, a manufacturing plant laid off workers for 4 weeks.  For the average worker, this might be approximately $3,000 worth of wages, and regular payroll later resumed. We have participants requesting $50,000-$60,000 distributions.  Thank you!

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16 minutes ago, TN CPA said:

As an additional question to this topic - is there any guidance (other than less than $100,000) to the amount an employee can request for a COVID distribution, assuming they are "affected" and the provisions have been adopted?  For example, a manufacturing plant laid off workers for 4 weeks.  For the average worker, this might be approximately $3,000 worth of wages, and regular payroll later resumed. We have participants requesting $50,000-$60,000 distributions.  Thank you!

There is nothing in the Act that limits distribution to the amount of any "need."   If you are a "qualified individual" you get what you can get from your account - subject to plan limits.  We do have some clients that have implemented limits of less than $100k - specifically as a result of the type of situation you refer to. 

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39 minutes ago, MoJo said:

There is nothing in the Act that limits distribution to the amount of any "need."   If you are a "qualified individual" you get what you can get from your account - subject to plan limits.  We do have some clients that have implemented limits of less than $100k - specifically as a result of the type of situation you refer to. 

Completely agree with MoJo on amount. The CARES Act distribution rules have no "limited to the amount needed to meet the hardship" component. The odd thing is that until IRS says otherwise, if an employer is unwilling to go beyond the explicit words of the statute, an employee whose hours are reduced qualifies, but one who has taken a pay cut arguably does not.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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