COVID distributions

[pmacduff]

ok -manufacturing client added COVID withdrawals to their 401k Plan but only up to $3,500 of the participant's vested balance.  Employees have been back to work full time for months.  (Furloughs were very brief for this particular client.) Can the Employer put an "end date" on these withdrawals so long as participants are properly notified?  They are seeing a dramatic increase in requests "all of a sudden" and surmise that word is getting around from those who took distributions early on and fear now it's just being used to get funds out. 

I'm thinking the answer is "no" and that they must keep this in place until 12/31/20.....  

 

[Luke Bailey]

pmacduff, you should be able to limit CRDs under the plan in any way you want, e.g. the $3,500 limit that was imposed is well below the $100,000 that could have been in place. Can limit period as well as amount. The issue you might have is that if your prior communications did not reserve the right to stop before 12/30, you could have an HR and maybe even fiduciary issue if employees were misled. Presumably, if there is any doubt about that you could move the end date out, e.g. 30 days from the date when you notify employees you are stopping.

[Larry Starr]

On 8/12/2020 at 3:26 PM, pmacduff said:

ok -manufacturing client added COVID withdrawals to their 401k Plan but only up to $3,500 of the participant's vested balance.  Employees have been back to work full time for months.  (Furloughs were very brief for this particular client.) Can the Employer put an "end date" on these withdrawals so long as participants are properly notified?  They are seeing a dramatic increase in requests "all of a sudden" and surmise that word is getting around from those who took distributions early on and fear now it's just being used to get funds out. 

I'm thinking the answer is "no" and that they must keep this in place until 12/31/20.....  

 

I'm thinking the answer is yes (actually, I'm sure of it!).  And I'm not as concerned as Luke is on the issue of notice.  I say you can stop anytime, just like you could eliminate a loan provision completely at any time without prior notice.

[RatherBeGolfing]

On 8/12/2020 at 3:26 PM, pmacduff said:

Employees have been back to work full time for months.  (Furloughs were very brief for this particular client.)

Keep in mind that a CRD is NOT a hardship distribution.  There is no heavy and immediate need requirement.  Whether the employees are back at work is immaterial.