Qualified Disaster Distributions (QDD's)-- What proof does an employer need?

[RCK13]

Good afternoon everyone, 

We recently had a client express interest in qualified disaster distributions (QDD's) as they are allowable under the Consolidated Appropriations Act 2021 and prior law. I realize that these cannot be used if COVID is the only major disaster declared in the area. However, this client is in an area that experiences frequent and intense hurricanes, so I think they are good on the first prong below. A "qualified individual" is an individual:

1.  whose principal place of abode at any time during the incident period of any qualified disaster is located in the qualified disaster area with respect to such qualified disaster; and
2.  who has sustained an economic loss by reason of such qualified disaster.

My question is surrounding what we, the TPA, would need to include on the form we provide to this client specific to proof. In certain distributions, we've required a showing of proof that the individual meets the requirements. I'm not sure if this can be treated like COVID distributions (CRD's) where they self certify, or if we need to include some other showing of proof that participants would be required to include in their submission for such a distribution. 

 

Wondering if anyone has thoughts on what type of proof a participant would need to submit for this type of distribution? Thanks in advance!

 

[Peter Gulia]

With its lawyer’s advice, a plan’s administrator (or claims administrator) might consider this decision path (not only regarding the Consolidated Appropriations Act, 2021 but also for future disaster distributions):

1.    If the statute that provides the disaster distribution includes a provision allowing the administrator to rely on the claimant’s written statement, follow what the statute allows.

A claim form might include a warning that making a false statement certified to the administrator or kept as a part of the plan’s records is a Federal crime, the punishment for which is a fine and up to five years’ imprisonment.  Some administrators put this on all claim forms.

2.    If the plan’s administration regularly uses for hardship distributions a claims procedure that meets conditions so an IRS examiner could not properly demand from the employer/administrator source documents [IRM 4.72.2.7.5.1 (08-26-2020) https://www.irs.gov/irm/part4/irm_04-072-002#idm140377115475856], design a similar procedure with similar warnings and protective conditions for a disaster distribution.

Although the recent qualified disaster distribution ends soon (180 days after enactment), a plan’s fiduciary or service provider might anticipate that Congress will enact more disaster provisions or some authority for defining and recognizing disasters generally.  If so, it might be worthwhile to put some effort in designing the procedure.

3.    If neither #1 nor #2 fits, use a claim form and get further substantiation evidence for the administrator to decide whether the claimant’s facts and circumstances meet the plan’s provision.  (If the plan’s provision is unstated in “the” plan document, the provision might be the employer’s decision to do what Congress’s statute allows.)

[RCK13]

Thanks, Peter, for your advice!