Qualifying For COVID Loan

[Stash026]

I know they left the distribution rules somewhat vague, but here's the situation we are trying to determine if someone qualifies for a loan:

Participant's father passed away due to COVID and the member is seeking a loan to pay for the funeral.  We know the participant and spouse have not lost any pay due to the pandemic (and may actually be making increased salary due to hazard pay).  So, would paying for the funeral qualify?  Curious as to others thoughts.

Thanks in advance!

[ratherbereading]

The rules are pretty clear.  I don't think that qualifies as a Coronavirus loan.  Maybe they could take an in-service if the plan allows or a regular plan loan.

 

You are considered a “Qualified Individual” (and eligible for the CARES-related options) if you meet one of the following criteria:

• You have been diagnosed with a coronavirus illness by a CDC recognized test.

• You have a spouse or dependent diagnosed with a coronavirus illness.

• You experience adverse financial consequences as a result of a quarantine, furlough, lay-off, reduction in work hours, business closure as a result of the virus, or because you cannot work due to an inability to obtain child-care as a result of the virus.

• You have experienced other factors determined by the Secretary of the Treasury

[Stash026]

21 minutes ago, ratherbereading said:

The rules are pretty clear.  I don't think that qualifies as a Coronavirus loan.  Maybe they could take an in-service if the plan allows or a regular plan loan.

 

You are considered a “Qualified Individual” (and eligible for the CARES-related options) if you meet one of the following criteria:

• You have been diagnosed with a coronavirus illness by a CDC recognized test.

• You have a spouse or dependent diagnosed with a coronavirus illness.

• You experience adverse financial consequences as a result of a quarantine, furlough, lay-off, reduction in work hours, business closure as a result of the virus, or because you cannot work due to an inability to obtain child-care as a result of the virus.

• You have experienced other factors determined by the Secretary of the Treasury

I guess they are hoping that it qualifies under the "other factors" provision.  I tend to agree, but just wanted to make sure and see if anyone else had any similar experience

[RatherBeGolfing]

Agree with RBR, the rules are clear.  Funeral doesn't qualify.  No "other factors" have been added at this point.

[MoJo]

5 hours ago, RatherBeGolfing said:

Agree with RBR, the rules are clear.  Funeral doesn't qualify.  No "other factors" have been added at this point.

While I agree with the end result that this is (probably) not a COVID loan situation, I disagree that you need a specific reason for the loan.  It doesn't matter.  If you are a "qualified individual" you can get the money (assuming - you otherwise are able to get a loan).  If the father was a "dependent" - then I would say it qualifies.  Period.

[fiduciary perspective]

More importantly, whether or not the participant actually qualifies, you as the administrator (I assume) may rely on the employee's certification that they satisfy the conditions of the loan or coronavirus-related distribution. So in your role as the administrator, I would argue that it's not your job to figure out if they actually qualify, but to permit the distribution if they certify to you that they indeed satisfy the conditions stated above by ratherbereading.

That said, I agree with MoJo above, that if the father was a dependent, then 4(A)(ii)(II) would have been satisfied, and this is a permissible loan.

[RatherBeGolfing]

37 minutes ago, MoJo said:

I disagree that you need a specific reason for the loan.  It doesn't matter.

I should clarify by saying that you don't need a specific reason for the loan, but you do need something to make you a qualified individual if you are going to take a CRL.  You could take a regular loan, but unless you are a qualified individual you will not get the increased limit or delay of repayment.

If the father i a dependent, the "qualifying event" is that the father has been "diagnosed with the virus SARS– CoV–2 or with coronavirus disease 2019 (COVID– 19)" under 4(A)(ii)(II).  The funeral itself does not make an otherwise non qualified individual a qualified individual. 

 

[MoJo]

12 minutes ago, RatherBeGolfing said:

I should clarify by saying that you don't need a specific reason for the loan, but you do need something to make you a qualified individual if you are going to take a CRL.  You could take a regular loan, but unless you are a qualified individual you will not get the increased limit or delay of repayment.

If the father i a dependent, the "qualifying event" is that the father has been "diagnosed with the virus SARS– CoV–2 or with coronavirus disease 2019 (COVID– 19)" under 4(A)(ii)(II).  The funeral itself does not make an otherwise non qualified individual a qualified individual. 

 

I would agree -which was my point.  But if the father was a dependent, I don't necessarily believe his subsequent death of the disease cancels the participant's status as a qualified individual.

[RatherBeGolfing]

5 minutes ago, MoJo said:

I would agree -which was my point.  But if the father was a dependent, I don't necessarily believe his subsequent death of the disease cancels the participant's status as a qualified individual.

I agree. The death of the dependent does not undo the qualifying event, which was diagnosis.

[Stash026]

Thanks everyone!  Is there a definition as to what would make the father a dependent for the child?

[BG5150]

8 minutes ago, Stash026 said:

Thanks everyone!  Is there a definition as to what would make the father a dependent for the child?

is that a taxation issue?  If the dad is dependent on the tax form, then he is a dependent in this case...

[BG5150]

Does the plan not already allow for loans?

Just curious.

[Stash026]

6 minutes ago, BG5150 said:

Does the plan not already allow for loans?

Just curious.

It does, he's looking to take more money than he would normally be eligible for though

[RatherBeGolfing]

31 minutes ago, Stash026 said:

Is there a definition as to what would make the father a dependent for the child?

IRC 152

[Luke Bailey]

1 hour ago, BG5150 said:

is that a taxation issue?  If the dad is dependent on the tax form, then he is a dependent in this case...

Stash026, the rules for when a parent is a dependent of taxpayer are written up in an IRS pub, but the "source code" is Section 152 of the Code, especially 152(d), so I would check that.

[AKconsult]

Does the plan allow hardship withdrawals?  The safe harbor hardship rules allow for a distribution to pay for the funeral of a parent, spouse, child or dependent.

[Luke Bailey]

49 minutes ago, AKconsult said:

Does the plan allow hardship withdrawals?  The safe harbor hardship rules allow for a distribution to pay for the funeral of a parent, spouse, child or dependent.

Stash026, AKconsult makes a really good point. If the participant is not economically affected by COVID, he or she should not have a problem taking a regular plan loan, assuming plan contains provisions for that. Also, as AKconsult points out, if the funeral expenses are an economic hardship for the participant, and the plan has the standard, pre-COVID hardship rules, funeral expenses should qualify.

[Stash026]

4 hours ago, AKconsult said:

Does the plan allow hardship withdrawals?  The safe harbor hardship rules allow for a distribution to pay for the funeral of a parent, spouse, child or dependent.

It does not unfortunately.  It does allow for in-service for over 59.5-years old, but the participant falls short of that as well.  They are just taking a standard loan at this point, which is luckily within about $1,500 of what they wanted