CRD from previous ER's Plan after layoff from current ER

[CRBarnard]

We have a former participant who left our client for non-COVID-19 related reasons and started working for another employer.  That employer just laid her off.  Can she now seek a distribution from her former employer's plan because she's been laid off from her current employer?

[RatherBeGolfing]

Can't she do that either way since she terminated?  or is there a wait?

If former employers plan offers CRDs, the answer is yes.  For tax purposes, the answer is yes, regardless of former employers CRD election.  

[pmacduff]

This seems to be coming up more and more in my world, more with regard to the Federal withholding.  Is it true to say that the former Employer Plan, if it does NOT offer COVID distributions, would treat this like any other terminated participant distribution (i.e. 20% Federal withholding if not rolled over)?  Then the participant will handle the taxation part on their end when they file their personal return for 2020?  

- Or - is the former Employer supposed to process this as a COVID based on the former participant's presentation that it is a COVID distribution even though there is no intention to add the COVID provisions to the "old" Plan?

Some of our clients are getting pushback from former participants that no taxes need be withheld as a COVID distribution (they claim to be furloughed now due to COVID at their current employer). Our client's plan did not adopt for COVID withdrawals because they are an essential Employer and not currently needing to add the provisions.

[Bird]

48 minutes ago, pmacduff said:

Is it true to say that the former Employer Plan, if it does NOT offer COVID distributions, would treat this like any other terminated participant distribution (i.e. 20% Federal withholding if not rolled over)?  Then the participant will handle the taxation part on their end when they file their personal return for 2020?

That's how I see it.  The participant could claim it as a CVD but the plan has no obligation to treat it that way.

50 minutes ago, pmacduff said:

Some of our clients are getting pushback from former participants that no taxes need be withheld as a COVID distribution (they claim to be furloughed now due to COVID at their current employer). Our client's plan did not adopt for COVID withdrawals because they are an essential Employer and not currently needing to add the provisions.

Sure, there's a lot of misinformation and willful blindness.  There is no requirement to offer CVDs.

[RatherBeGolfing]

1 hour ago, Bird said:

2 hours ago, pmacduff said:

Is it true to say that the former Employer Plan, if it does NOT offer COVID distributions, would treat this like any other terminated participant distribution (i.e. 20% Federal withholding if not rolled over)?  Then the participant will handle the taxation part on their end when they file their personal return for 2020?

That's how I see it.  The participant could claim it as a CVD but the plan has no obligation to treat it that way.

This is how I am treating it, but there is plenty of disagreement here.  Some say the plan can, but is not required to, allow a participant to self certify even if the plan does not offer CRDs.   Derrin had this in his Q&A earlier this month, and Im hoping he will clarify it during the webcast today.

EDIT:  Derrin reiterated this position during today's webcast.  

Link to webcast.  They usually have the recording up within a day or two if you were unable to attend

[CRBarnard]

Thanks for this information and the webcast link.  This is very helpful.

[CRBarnard]

Thanks to all for your input.

[Bird]

18 hours ago, RatherBeGolfing said:

EDIT:  Derrin reiterated this position during today's webcast.  

I heard that.  "Sure" if I remember correctly.  I think he's wrong.  Immediately following that webcast American Funds said no.

[RatherBeGolfing]

36 minutes ago, Bird said:

I heard that.  "Sure" if I remember correctly.  I think he's wrong.  Immediately following that webcast American Funds said no.

Basically what he said was that you dont have to add a special provision to waive the 20% withholding, but you have to give a 3405(e)(10) notice that you can elect out of the 10% withholding.  

Thanks for pointing out the AF webcast. Im sticking to my guns and saying 20% until we get guidance that says otherwise.