CARES Act distribution

I have a plan sponsor who has an employee requesting a CARES Act withdrawal. The employee has disclosed in an email that he hasn't had a negative financial impact from Covid. He just wants the money to invest outside of the plan. The withdrawal paperwork requires trustee signoff. The question is, should the trustee sign off on the withdrawal knowing that the employee has admitted that he hasn't had a financial setback?

Thoughts?

IRS Q&A #11 may be relevant:

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

No, he shouldn't. However, that being said, I have a plan who has had 3 corona related distributions and absolutely none of the people are affected at all.  They just wanted to be able to take a large distribution, and loans  and be able to put off the loan repayments.  Because it's up to the participant to self-certify, the plan sponsor/trustee ok'd them.

Thank you for the responses. That is very helpful.

2 hours ago, Will J said:

I have a plan sponsor who has an employee requesting a CARES Act withdrawal. The employee has disclosed in an email that he hasn't had a negative financial impact from Covid. He just wants the money to invest outside of the plan. The withdrawal paperwork requires trustee signoff. The question is, should the trustee sign off on the withdrawal knowing that the employee has admitted that he hasn't had a financial setback?

Thoughts?

In this case, the employer should NOT approve it.  HOWEVER, he can ask that the participant re-examine his situation, give him a CRD form that shows the conditions (as of now) that is necessary, and then asks the participant to self-certify.  The employee was an idiot to disclose this non-eligible situation AT THAT TIME, but he can certainly have a change in his situation that now would qualify him.  And again, all he has to do is self-certify.  Understand?

                Let me add two nuances.  

                 An individual qualifies for a coronavirus-related distribution as defined under Section 2202 of the CARES Act under three circumstances. Only one requires that the individual have suffered adverse financial consequences. An individual, however, who has been diagnosed with the virus SARSCoV—2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention, qualifies for such a distribution even if the individual did not suffer any adverse financial consequences.  An individual, whose spouse or dependent has been so diagnosed similarly qualifies for such a distribution even if the individual did not suffer any adverse financial consequences.  

            Lois is correct.  The IRS takes the position in Answer 11 that she cites that if a plan sponsor knows that an individual does not qualify for a coronavirus-related distribution the sponsor may not rely on such certification.

1 hour ago, Albert F said:

                           Lois is correct.  The IRS takes the position in Answer 11 that she cites that if a plan sponsor knows that an individual does not qualify for a coronavirus-related distribution the sponsor may not rely on such certification.

I would suggest that it is IMPOSSIBLE for the plan administrator to KNOW that the participant does not qualify.  Maybe her wife was diagnosed but they don't want to broadcast that.  Lot's of other possibilities that it is impossible for the PA to KNOW for sure. How can the PA KNOW that the test used to verify CORVID was a CDC approved test; I'm quite sure the participant has no idea what test was used and whether it was approved. Therefore, the self-certification of the participant is going to be adequate.  Practically, it is never going to be challenged to the plan by the IRS.  Perhaps IRS might challenge the individual tax return, but I frankly don't think that will happen. I also think we will get more guidance from IRS of what will qualify under the additional conditions, and my betting is that almost everyone in the country will qualify once they announce their "additional" conditions.  FWIW.

16 hours ago, Larry Starr said:

I would suggest that it is IMPOSSIBLE for the plan administrator to KNOW that the participant does not qualify.  

I pretty much agree.  The one exception may be the rare participant that outright says "I dont qualify but I really need the cash...."  But even then, circumstances can change.

5 hours ago, RatherBeGolfing said:

I pretty much agree.  The one exception may be the rare participant that outright says "I dont qualify but I really need the cash...."  But even then, circumstances can change.

Bless you my son....