Should a plan provide a domestic-abuse distribution?

When a plan sponsor asks for your advice about whether to provide or omit an eligible distribution to a domestic abuse victim, what do you recommend or suggest?

9 minutes ago, Peter Gulia said:

When a plan sponsor asks for your advice about whether to provide or omit an eligible distribution to a domestic abuse victim, what do you recommend or suggest?

Wait to make the decision to provide or omit until we have clear guidance on how to administer it? 

RatherBeGolfing, thank you for helping me think.

Would your suggestion be different if no service provider (and no fiduciary) worries about a difficulty in tax-reporting this distribution?

I know a lot folks who aren't that keen on self certification in general.  They may not feel comfortable with the self certification aspect or a possible "run on the bank" when employees know they just need to self certify.  We saw similar issues with CARES distributions, some plans had just about every NHCE self certify and take money out.

Tax consequences and the whole repayment of these special payments aside, the victim of domestic abuse taking a payment may result in unintended consequences.

Imagine the scenario where a person is the victim of domestic abuse but is still dependent upon the abuser or does not have protection from the abuser.  The victim self-certifies and takes the distribution which is then reported to the address on record where the victim and/or the abuser resides.  This sounds like a situation that could trigger further abuse.

It also seems that the victim likely will wind up revealing the abuse to the plan administrator in the event the recordkeeper or IQPA auditor inquires about the payment.  Where the plan administrator often is in a role within HR, might this trigger a need for the plan administrator to take steps to protect the victim?

RatherBeGolfing, thank you for your observations about how some plan sponsors might dislike allowing a too-easy payout.

Paul I, thank you for your smart caution about the participant’s address. Do you think it’s feasible for a recordkeeper’s employee to suggest the participant change the account’s address and wait two weeks before taking the distribution?

About designing procedures to protect an abuse victim’s privacy (and a plan administrator’s and employer’s lack of knowledge): An administrator can instruct its recordkeeper to process a claim if the claimant completed and signed the plan’s form, which includes the self-certifying statements. An advantage of such a procedure is that no one sees the facts of the participant’s situation, just the claimant’s conclusion. A plan’s administrator can set up the communications, forms flow, and claims procedure so the administrator never sees the participant’s claim, nor sees or hears a participant’s inquiry. (One of my clients gets a report on the number of claims paid, but nothing that reveals any distributee’s or claimant’s identity. And for reasons you suggest and some others, human-resources people might welcome a lack of knowledge.) Yet, I recognize many plans might be unable to implement these procedures and services.

Peter, I believe that you are offering several excellent suggestions that are applicable not only to the domestic abuse distributions, but also are applicable to several other recently enacted special purpose distributions that involve self-certification.

It appears that the in the industry, systems development efforts related to these distributions is lagging behind the implementation of other new features that are not optional.   We can only hope that when support for these self-certified distributions is implemented fully, the procedures will give high priority to concerns for the privacy and security of the participant.

There are a lot of great thoughts coming out of Congress (did I really just type that? queue music for It's the End of the World As We Know It or Dazed and Confused) from retirement industry specialists (sorry, not saying experts, already gave too much credit) where some well-intentioned people say there oughta be a law and then they enact one. However, the bridge between concept (nice idea) and reality (administration) is often an architectural challenge/nightmare/near impossibility. I'm not saying that is the case here but it sure does sound like a case of no good deed goes unpunished - or 10% of the special cases that suck up 90% of your time - pick your cliche. 

Agree that being able to administer in a fashion that protects the victim's physical, emotional and financial well-being, as well as privacy, without undo burden on the Plan/PA is the need, how to accomplish that in different employment environments will be challenging for sure.

Personally, I don't think a plan or plan administrator can be too concerned about protecting the victim (I know that sounds terrible, but hear me out). They should treat the victim as being able to make a decision for themselves, and make sure the victim has all the relevant information needed to make the decision. This is somewhat similar to the principle that an employer can't make the decision for a pregnant employee to remove the employee from a job area that might be hazardous to the employee. It must be the employee that makes the decision. But the plan administrator should inform the victim of domestic violence if information is going to be sent to the house regarding the distribution, etc. I can't see a scenario where a plan admin would have any legal liability for a victim incurring further abuse following a distribution. 

Paul I and CuseFan and kmhaab, thank you for your further observations.

My clients use procedures designed so a recordkeeper, without accepting discretion, can process as good-order or “NIGO” almost all kinds of claims.

For a participant loan, an emergency personal expense distribution, a qualified birth or adoption distribution, an eligible distribution to a domestic abuse victim, and a hardship distribution, there is no tax-law need (and, in my view, no good reason) to evaluate the claim beyond good-order processing. Claims for retirement distributions and even death distributions ordinarily can be handled in the recordkeeper’s processing without discretion. A recordkeeper involves the plan’s administrator only when a claimant asserts her right to dispute the recordkeeper’s response, or the circumstances relate to a court proceeding, bankruptcy, or other trouble.

Many recordkeepers have not built forms, procedures, and systems for SECURE 2022’s and SECURE 2019’s new kinds of distributions. Their explanations to plan sponsors (and consultants too) blame an absence or insufficiency of IRS guidance. Some of that blame is fair; much of it is unfair. Small plans are stuck; bigger plans negotiate workarounds.

Many recordkeepers need to intensify identity controls, address controls, and cybersecurity protections. Like it or not, a retirement plan account is increasingly like a bank account in a holder’s power to take money out whenever she wants—yet with bigger amounts and bigger risks.

Returning to my originating question about which provision one would recommend (after solving the plan-administration issues, or imagining a hypothetical absence of them):

Some plan sponsors might dislike allowing a too-easy payout.

Yet, if a plan’s opportunity to generate retirement income for a participant depends, exclusively or heavily, on participant contributions, providing SECURE 2019’s and SECURE 2022’s before-retirement distributions can be a way to help reassure reluctant savers that one’s money will be available to meet needs when they happen.

And I suggest employers treat working people as adults, who make one’s own decisions about how to use one’s resources.