COVID 19 and Hardship Distributions

Good afternoon -- I'm looking for confirmation on whether COVID-19 falls within the new disaster category of Safe Harbor hardships under the hardship final Regs. While this pandemic is listed on the FEMA website for each state, it was declared an "emergency" rather than a "disaster". In researching, it appears the Robert T. Stafford Disaster Relief and Emergency Assistance Act classifies both an emergency and a major disaster as types of disasters, so it appears to be eligible for hardship distribution (if allowed under the plan terms). However, I found conflicting information on a law firm's website that states it's an emergency but not classified as a disaster for safe harbor hardship purposes. Thoughts?

I would say it is not. 

The hardship rule recognizes “[e]xpenses and losses (including loss of income) incurred by the [participant] on account of a disaster declared by the Federal Emergency Management Agency (FEMA) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 100-707, provided that the [participant’s] principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the disaster.”  [emphasis added] https://www.ecfr.gov/cgi-bin/text-idx?SID=4c951939412ec008447457c67ea011e8&mc=true&node=se26.6.1_1401_2k_3_61&rgn=div8

The President decided “an emergency determination under section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. [§§] 5121-5207 (the “Stafford Act”).” https://www.whitehouse.gov/wp-content/uploads/2020/03/LetterFromThePresident.pdf

Stafford Act § 501 / 42 U.S.C. § 5191 https://www.govinfo.gov/content/pkg/USCODE-2018-title42/html/USCODE-2018-title42-chap68-subchapIV-A-sec5191.htm

Stafford Act § 502 / 42 U.S.C. § 5192 https://www.govinfo.gov/content/pkg/USCODE-2018-title42/html/USCODE-2018-title42-chap68-subchapIV-A-sec5192.htm

The President’s next-to-last paragraph:  “In addition, after careful consideration, I believe that the disaster is of such severity and magnitude nationwide that requests for a declaration of a major disaster as set forth in section 401(a) of the Stafford Act may be appropriate.”  [emphasis added]

Today, FEMA’s website shows only two places with disasters declared for individual assistance (neither about coronavirus):  https://www.fema.gov/disaster/4476 https://www.fema.gov/disaster/4473.

In FEMA’s website, entering “New York, New York” calls up “No disasters declared for Individual Assistance were found for this address.”  https://www.disasterassistance.gov/get-assistance/address-lookup?isMap=false&address=New+York%2C+New+York

Thank you both!

To add to what Peter has said, it appears the President's hands are tied until a major disaster request is made by a local government (his hands aren't similarly tied with respect to an emergency declaration under the Stafford Act, and so can declare it even without the request first having been made).  I would guess that individual states will (if they haven't already) make requests for a major disaster declaration, which the President sounds amenable to granting based on his announcement.  Once that happens, and assuming FEMA declares the applicable areas as eligible for individual assistance by FEMA, a hardship distribution may be permitted under the new FEMA safe harbor.  Alternatively, a plan could be amended to allow hardships for COVID-19 specifically, recognizing that it would not have the safe harbor protection.  Another consideration is documentation of the hardship.  The preamble to the recent hardship regulations recognize plans may be flexible in their documentation requirements for FEMA disasters but it would be helpful to have further guidance from the IRS.   

Even in good times, some practitioners suggest providing a both-and: the seven deemed needs and an eighth category for a need explained to the claims administrator.