Does the plan need to provide a coronavirus-related distribution?

[Peter Gulia]

Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution.  But here’s one further reason why a classification might matter.

 

Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.

[Mike Preston]

42 minutes ago, Peter Gulia said:

Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution.  But here’s one further reason why a classification might matter.

 

Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.

Part of the information that goes into the determination as to whether or not to provide for such from the plan.

 

[Larry Starr]

1 hour ago, Peter Gulia said:

Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution.  But here’s one further reason why a classification might matter.

 

Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.

I hate that arbitrary distinction; if I was still in that big HO in the sky, I would be arguing that our "recordkeeper" operation should be waiving all distribution fees for the short period that this applies.  To do otherwise is nonsensical; if I'm the employer, I'll just tell the recordkeeper that it IS a CRD even if it may not be.  What's the downside of that?  Since the participant is the one who decides whether to treat it as a CRD, then I would suggest all distributions likely could be a CRD and the participant so certifies.  Just typical home office stupidity.

[Luke Bailey]

On ‎5‎/‎5‎/‎2020 at 2:16 PM, Peter Gulia said:

Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution.  But here’s one further reason why a classification might matter.

 

Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.

Interesting point, Peter. Thanks for the info.

[Susan L.]

Also, wouldn't a plan amendment that requires the certification protect the plan administrator who needs to decide whether or not to do the required 20% withholding on the distribution?  

[Larry Starr]

25 minutes ago, Susan L. said:

Also, wouldn't a plan amendment that requires the certification protect the plan administrator who needs to decide whether or not to do the required 20% withholding on the distribution?  

It doesn't "protect" the PA. If there is an amendment, then there is no mandatory withholding for short period.  If the employer doesn't do the amendment, there is a mandatory 20% withholding; there is nothing that the PA has to "decide"; it is black and white.

And, the withholding can be avoided by having the employee do a direct trustee to trustee transfer to an IRA (like, a money market IRA set up at their local bank) and then the participant can take the money with no withholding. HOWEVER, the participant must always be reminded that he is going to have to pay taxes on those withdrawn funds (just no penalty) and if he doesn't have the withholding but withdraws the money, he might have an underwithheld situation when he does his taxes and have penalties applicable to that status.

[MoJo]

On 5/5/2020 at 4:58 PM, Larry Starr said:

I hate that arbitrary distinction; if I was still in that big HO in the sky, I would be arguing that our "recordkeeper" operation should be waiving all distribution fees for the short period that this applies.  To do otherwise is nonsensical; if I'm the employer, I'll just tell the recordkeeper that it IS a CRD even if it may not be.  What's the downside of that?  Since the participant is the one who decides whether to treat it as a CRD, then I would suggest all distributions likely could be a CRD and the participant so certifies.  Just typical home office stupidity.

...or, it could be economics.  Most recordkeepers I know are not charities, and while "client service" might mandate some fee waivers, mass fee waivers could endanger firms with already very thin margins.  We waived fees for CRDs and for "regular" hardships during the relief period.  We did not waive fees for CRLs (they go on and on and on and on and require lots more work).

Business decision.  Did include factors relating to client relationships and PR.  Not at all arbitrary.

[Larry Starr]

2 hours ago, MoJo said:

...or, it could be economics.  Most recordkeepers I know are not charities, and while "client service" might mandate some fee waivers, mass fee waivers could endanger firms with already very thin margins.  We waived fees for CRDs and for "regular" hardships during the relief period.  We did not waive fees for CRLs (they go on and on and on and on and require lots more work).

Business decision.  Did include factors relating to client relationships and PR.  Not at all arbitrary.

I agree you did what I would have thought made sense; waive the fees not just for CRDs but ALL hardships.  Was not including regular distributions in that thought.  Would not consider waiving fees was appropriate for CRLs.