Retirement Plan COVID Certification
Hi this is Bob. Toth curator and creator of the business of Benefits. Trying something new. We're going to attempt to try a podcast to go alongside the written word. Perhaps to give it a bit more color. And besides it gets me a chance to sit by my glass of troublemaker. While sheltering in pretending. I'm doing some work what I'd like to discuss. Today is one of the more difficult and intractable issues. Were finding a rising out of the Cares Act. And that has to do with the certification by the participant of Co vid status have actually titled This blog the fiduciary angle to the participant Kovic certification because of spousal employment loss. We know that all parties involved planet administration are struggling with the question of whether the employer or the participant have the cures act right to number one and extension of those loan maximum amounts. I think it's the employer shows to the right to suspend loan repayments. I think it's the participants right. Not The employers. Can you imagine the ramifications of an employer choosing a taxable default in ten percents penalty even if by default number three the right to take a non restricted crd distribution that is coke rotavirus related distribution again? I think it's the participants choice and four the right to non R. and D. Treatment. Again this participants choice I see and the tax impact is actually automatic. But beyond those difficult questions. Yes I'm getting my two cents in on each one of these points is the application of Orissa's fiduciary rules to the determination of the status of a participant as being eligible for the cares act relief. And let's call these people the covert participant under the Statute. You are eligible to be a covert participant. Take advantage of all these things. I've spoken if number one. You are diagnosed with the virus number. Two your spouse or dependent is diagnosed with such a virus or number three. And this is the exact we're to the statute itself so bear with me. You are an individual who experiences adverse financial consequences as a result of being quarantined being furloughed or laid off or having work hours reduced due to such virus disease being unable to work due to lack of childcare due to such virus disease closing or reducing hours of a business owned or twenty five percent operated by the individual due to such virus or disease or other factors as determined by the secretary of the Treasury ores designation. So I think we all agree that the determination of whether or not an individual qualifies as a cold participant would usually be a determination that requires the exercise discretion by fiduciary under Orissa section. Twenty one three twenty one. And that's the general fiduciary status section. But as you also know however the cares. Participants for certification rule adds an odd twist into the mix what the certification rule says is that the administrator of an eligible retirement plan may rely on an employee's certification that the employees satisfies the condition of the above rules in determining whether any distribution is a corona virus related distribution abso. Please I can say that word properly so area. Here's where the problem seems to come in. There's a bit of ambiguity in the third condition of eligibility nowhere. Does it specifically mention the impact of the loss of employment or reduction in hours of the spouse of the participant in the calculation of what are the causes of the participants adverse financial circumstances? Which trigger covert status. So this describe it this way. Consider the following circumstances case number one a participant is still employed but has a reduction in hours which reduces her pay so. She can't make the rent. This clearly is an adverse financial consequence and as long as she certifies to this she will get a corona virus related distribution our CRTV along with the three years spreading of tax the right to repay and a waiver of the ten percent tax penalty. Compare this to case number two that same participant is still fully employed is working at home due to a state order but her husband has lost his job. They now cannot afford the rent and she suffered an financial consequence indeed. She'll have no place to work. If they lose their apartment she certifies that she has an adverse financial circumstance from being quarantined. Does the plan pay as a CRTV? There is a bit of contention on this point ended up if you read the material see. There's no widespread agreement so I offer a few things to think about when you're answering this question. Who sure doesn't need to make that. Determination of covert status. It is entitled to rely upon that participant certification and note that the statute does not impose even a reasonable basis or any other such standard in making the certification yet directing payments. Out of a plan is still a fiduciary act even with the certification only fiduciaries authorize the payments of these funds. But the do L. has long held that the fiduciary has the obligation to override a participants decision. If it's imprudent so isn't the real question then whether or not the fiduciary should reject the participants are vacation. So here's where Orissa may be useful absent guidance from the Treasurer Gio out says that the fiduciary missed act with care skill prudence and diligence under the circumstances then prevailing that a prudent man acting like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims wouldn't it produce. Sherry who relies upon the certification of the participant. Be judged by the standard. So when you apply the under the circumstances then prevailing standard would not a fiduciary hard pressed to challenge the certification especially given the pandemic in the remedial nature of the statute and the other handy fiduciary challenged certification based upon the lack of specific spousal language in the statute will be faced with some hurdles denying benefit and would need to defend that decision through the era claims and appeals process which they would need to make formerly available to the tonight participant then the severe consequences challenging the certification and nine certification should also give Hoodoo Sherry pause denying it means that the participant may now than even be able to access the funds to prevent eviction or even if that person is lucky enough to qualify for a typical hardship still being employed. There's a mandatory tax withholding of twenty percent on the withdrawal so more funds will need to be withdrawn to make the rent payment. The withdrawal will be fully tax next April at a time when there's still may be financial struggles and recovering from this mass. It is subject to the ten percents penalty and the losses are permanent as there is no right to repay those withdrawals from the plan. It would seem that given the high stakes and the exacerbation of participants adverse circumstances which would be caused by any denial of the certification if producer would be hard pressed to reject that certification. A reasonable case could be made that the food do Sherry Nat rejects such certification. But this decision is not. Without some risk the IRS could claim if treasury fails to clarify the position fails to exercise the authority to fill in the missing spousal language under its authority granted under the statute the C. R. D. Under these circumstances. Y- either a plan document or an operational error that error would then need to be fixed under F. kaffirs including VP. And that is the risk of the night. Then benefit of granting that benefit I apologised. Somehow it is difficult to accept that the IRS would dictate a correction under Edgar's which would force the return of the or the treatment of the crd as a standard hardship. Draw under these circumstances so this is just one type of factual circumstances with which we must you. None of this is easy. All of this is heartbreaking. And all very real thank you let me know what you think.