CARES Act Qualified Individual

Would the Participant in the example below be considered as experiencing "adverse financial consequences as a result of being quarantined" and qualify for loan deferment?

Example: Participant: has 401k loan but has not had a reduction in hours/pay due to COVID-19; Participant's Spouse: lost job due to COVID-19 (not diagnosed with COVID-19 but cannot work)

CARES Act Qualified Individual: to an individual (a) who is diagnosed with COVID-19, (b) whose spouse or dependent is diagnosed with COVID-19, or (c) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury during the COVID-19 pandemic

This participant does not seem to meet the criteria based on your description, but this is a common situation and I think the consensus is that we will get guidance to clarify that this is one of the "other factors as determined by the Secretary of the Treasury during the COVID-19 pandemic".

5 hours ago, Lolo said:

Would the Participant in the example below be considered as experiencing "adverse financial consequences as a result of being quarantined" and qualify for loan deferment?

Example: Participant: has 401k loan but has not had a reduction in hours/pay due to COVID-19; Participant's Spouse: lost job due to COVID-19 (not diagnosed with COVID-19 but cannot work)

CARES Act Qualified Individual: to an individual (a) who is diagnosed with COVID-19, (b) whose spouse or dependent is diagnosed with COVID-19, or (c) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury during the COVID-19 pandemic

I have no doubt that "spouse being terminated due to COVID" will qualify.  I would proceed on that basis without hesitation. 

On 4/14/2020 at 4:22 PM, Larry Starr said:

I have no doubt that "spouse being terminated due to COVID" will qualify.  I would proceed on that basis without hesitation. 

Larry -

Has there been any announcements or comments by the IRS yet? Are you advising clients to accept certifications made on the spouse being terminated qualification?  I suddenly having this come up time and time again.

I have the following similar situation but the Participant would prefer to "know" he is a Qualified Individual... Participant's spouse has her own dental practice. Due to Covid, her dental practice is extremely limited. The Participant and the spouse purchased another dental office space and were about to lease it to the spouse's dental practice when Covid hit. Now, the practice is not moving into the new space.  By owning the new space with his spouse, which is now not income producing, would the Participant be a Qualified Individual but virtue of the "adverse financial consequences due to a closing or reduction in hours of a business that you own or operate due to Covid" qualification?

Thank you so much. Stay safe and be well.

2 hours ago, cheersmate said:

Larry -

Has there been any announcements or comments by the IRS yet? Are you advising clients to accept certifications made on the spouse being terminated qualification?  I suddenly having this come up time and time again.

I have the following similar situation but the Participant would prefer to "know" he is a Qualified Individual... Participant's spouse has her own dental practice. Due to Covid, her dental practice is extremely limited. The Participant and the spouse purchased another dental office space and were about to lease it to the spouse's dental practice when Covid hit. Now, the practice is not moving into the new space.  By owning the new space with his spouse, which is now not income producing, would the Participant be a Qualified Individual but virtue of the "adverse financial consequences due to a closing or reduction in hours of a business that you own or operate due to Covid" qualification?

Thank you so much. Stay safe and be well.

 

Id say qualified individual without hesitation.  

Thank you for the quick reply!  Have you heard anything suggesting when the IRS will address this formally or even informally?

Again, thank you so much!

2 hours ago, cheersmate said:

Larry -

Has there been any announcements or comments by the IRS yet? Are you advising clients to accept certifications made on the spouse being terminated qualification?  I suddenly having this come up time and time again.

I have the following similar situation but the Participant would prefer to "know" he is a Qualified Individual... Participant's spouse has her own dental practice. Due to Covid, her dental practice is extremely limited. The Participant and the spouse purchased another dental office space and were about to lease it to the spouse's dental practice when Covid hit. Now, the practice is not moving into the new space.  By owning the new space with his spouse, which is now not income producing, would the Participant be a Qualified Individual but virtue of the "adverse financial consequences due to a closing or reduction in hours of a business that you own or operate due to Covid" qualification?

Thank you so much. Stay safe and be well.

 

There have not been any additional guidance yet from IRS. However, and I have said this a number of times on this board, the participant will simply self-certify that "I meet the requirements for a Coronavirus Related Distribution" and no reason for why he qualifies is needed nor should it be requested.  And if the plan does not offer CRD, then the participant can simply call an "audible" by self certifying on their own that the distribution was a CRD when they do their tax return.  I think people are overthinking this.  Just about every distribution can be a CRD.  Now, as a matter of information, we have exactly ONE PLAN where we are currently discussing having a CRD option adopted and I doubt it will actually happen even in that plan.  For us, this is just a non-issue (and happily so).

The participant doesn't need to KNOW that he is a qualified individual. He self-certifies that  he is and that's the end of it. There will be NO "auditing" of those certifications; it would be impossible and IRS does not have the resources.  And that's the truth!

7 minutes ago, Larry Starr said:

we have exactly ONE PLAN where we are currently discussing having a CRD option adopted and I doubt it will actually happen even in that plan. 

We have a handful, all "elective procedure" type of practices who had to shut down.  The last one dragged their feet but finally allowed it, and the flood gates have opened....

2 hours ago, RatherBeGolfing said:

We have a handful, all "elective procedure" type of practices who had to shut down.  The last one dragged their feet but finally allowed it, and the flood gates have opened....

I have none also... and have warned this particular employer about the flood gates. He has his concerns.

If the plan doesn't adopt CRDs, on what basis can the participant who is actively employed request a distribution? 

Thank you again Larry. 

6 minutes ago, cheersmate said:

I have none also... and have warned this particular employer about the flood gates. He has his concerns.

If the plan doesn't adopt CRDs, on what basis can the participant who is actively employed request a distribution? 

Thank you again Larry. 

 

By satisfying the plan's rules on in-service distributions, whatever they may be.

On 4/14/2020 at 10:54 AM, Lolo said:

Would the Participant in the example below be considered as experiencing "adverse financial consequences as a result of being quarantined" and qualify for loan deferment?

Example: Participant: has 401k loan but has not had a reduction in hours/pay due to COVID-19; Participant's Spouse: lost job due to COVID-19 (not diagnosed with COVID-19 but cannot work)

CARES Act Qualified Individual: to an individual (a) who is diagnosed with COVID-19, (b) whose spouse or dependent is diagnosed with COVID-19, or (c) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury during the COVID-19 pandemic

On 4/14/2020 at 4:22 PM, Larry Starr said:

I have no doubt that "spouse being terminated due to COVID" will qualify.  I would proceed on that basis without hesitation. 

I am going to have to 100% disagree.

As written, the legislative text clear states, that only adverse financial consequences as a result of direct effects borne by the the plan's participant qualify. A spouse's adverse financial consequences do NOT qualify. Only for that spouse's retirement accounts.

Maybe, guidance or additional legislation will clarify this, but as it stands, that is a firm NO to the circumstances described.

4 hours ago, cheersmate said:

I have none also... and have warned this particular employer about the flood gates. He has his concerns.

If the plan doesn't adopt CRDs, on what basis can the participant who is actively employed request a distribution? 

Thank you again Larry. 

 

If the plan does not provide for specific CRDs, then the participant will be able to request a distribution only under the regular operation of the plan, like termination of employment, reaching NRA, death, disability, etc.

2 hours ago, spiritrider said:

 

I am going to have to 100% disagree.

As written, the legislative text clear states, that only adverse financial consequences as a result of direct effects borne by the the plan's participant qualify. A spouse's adverse financial consequences do NOT qualify. Only for that spouse's retirement accounts.

Maybe, guidance or additional legislation will clarify this, but as it stands, that is a firm NO to the circumstances described.

You are missing the practical issues here. First, the employee SELF-CERTIFIES that he meets the requirements.  He does not have to say WHICH requirements.  So if the plan adopts CRDs, it doesn't matter if it is the spouse's adverse financial consequences that necessitates a distribution from this plan.  The employee self-certifies and the distribution is made. I will say it once more: the employer does not ask HOW the participant qualifies; just needs the participant to say he does!

10 hours ago, Larry Starr said:

You are missing the practical issues here. First, the employee SELF-CERTIFIES that he meets the requirements.  He does not have to say WHICH requirements.  So if the plan adopts CRDs, it doesn't matter if it is the spouse's adverse financial consequences that necessitates a distribution from this plan.  The employee self-certifies and the distribution is made. I will say it once more: the employer does not ask HOW the participant qualifies; just needs the participant to say he does!

I don't disagree with what you are saying here. Any potential consequence of a self-certification of even blatantly non-qualified facts and circumstance  are on the participant and not the plan. It is not the plan's responsibility to verify anything. 

On 4/14/2020 at 4:22 PM, Larry Starr said:

I have no doubt that "spouse being terminated due to COVID" will qualify.  I would proceed on that basis without hesitation. 

However, I do disagree with the first sentence of your post I replied to, because the OP asked if the participant would qualify. Currently, with those facts and circumstances they do not. Now I will admit, even if congress or IRS guidance does not expand adverse financial consequences to those of the entire family. The IRS is unlikely to take any corrective action with such a fact pattern.

Still the participant does not qualify and that was the question.

2 hours ago, spiritrider said:

 

However, I do disagree with the first sentence of your post I replied to, because the OP asked if the participant would qualify. Currently, with those facts and circumstances they do not. Now I will admit, even if congress or IRS guidance does not expand adverse financial consequences to those of the entire family. The IRS is unlikely to take any corrective action with such a fact pattern.

Still the participant does not qualify and that was the question.

 

 Spiritrider - to bring this full circle and to make sure the finer nuance of my inquiry is covered in your comments, the Participant is active in Plan A (unrelated plan sponsor). The Participant has partnered with his wife to buy an office (not certain if it stands alone or condo).  The intention of that purchase was to rent the location to his wife's dental practice. All of this happened prior to Covid. Covid hit, the wife's practice is practically at a standstill, consequently she has not moved her practice to take occupancy of the newly purchased office space.  Since the Participant is part owner of this office space that he now is not collecting rents on... do you think he could qualify?  I believe you do not but just to be sure I am following you, please confirm.

Again, thank you everyone. 

4 hours ago, spiritrider said:

I don't disagree with what you are saying here. Any potential consequence of a self-certification of even blatantly non-qualified facts and circumstance  are on the participant and not the plan. It is not the plan's responsibility to verify anything. 

However, I do disagree with the first sentence of your post I replied to, because the OP asked if the participant would qualify. Currently, with those facts and circumstances they do not. Now I will admit, even if congress or IRS guidance does not expand adverse financial consequences to those of the entire family. The IRS is unlikely to take any corrective action with such a fact pattern.

Still the participant does not qualify and that was the question.

 

I'm assuming the OP want to be able to make a CRD to this participant.  He is asking if the individual qualifies, and I'm saying to the OP that the PARTICIPANT makes that determination, self-certifies, and the distribution can be made.  Does he meet the technical definition?  Maybe not (we'll have to see what additional guidance the IRS allows for being financially impacted, but this guy has a good story).  But assuming the OP wasn't taking a test where he had to know the "technical" definition, but instead wanted to know HOW he could make the CRD distribution, I have given him what I think is extremely useful information as to how it actually works.  So, like I tell my employees, don't answer the question a client asks, ask them WHY are they asking that.  In this case, because we can't talk to the OP, I'm assuming what he really want to know is "can I make a distribution to this guy" and the answer is yes, as I explained.

Reminds me of the guy in the hot air balloon who is lost and sees a guy on the ground and asks him "where am I" and the guy answers "you're in a hot air balloon".  The balloonist responds "you must be a lawyer" and the guy on the ground, surprised, answers "yes, how did you know".  The balloonist replies "because your answer was absolutely correct and absolutely useless!"

6 hours ago, cheersmate said:

 Spiritrider - to bring this full circle and to make sure the finer nuance of my inquiry is covered in your comments, the Participant is active in Plan A (unrelated plan sponsor). The Participant has partnered with his wife to buy an office (not certain if it stands alone or condo).  The intention of that purchase was to rent the location to his wife's dental practice. All of this happened prior to Covid. Covid hit, the wife's practice is practically at a standstill, consequently she has not moved her practice to take occupancy of the newly purchased office space.  Since the Participant is part owner of this office space that he now is not collecting rents on... do you think he could qualify?  I believe you do not but just to be sure I am following you, please confirm.

I was not referring to your post, but that of the OP. Which is a different fact pattern.

A business owner that has suffered adverse financial consequences (closing or reducing hours of a business owned or operated by the individual due to such virus or disease) can take a CVD. However, rental income rarely qualifies as being engaged in a trade or business. So depending on those fact and circumstances this may not qualify for a CVD either.

P.S. As Larry has pointed out. Whether a participant is qualified or not. If they certify they are, the plan has no reason not to make the distribution.