CARES Act – Who is a ‘Qualified Individual’?

By Linda Visconti, QKA

Retirement Plan Administrator, Tycor

(Article written on 4/20/2020 and includes guidance and provisions as of that date)

By now you have heard about the many provisions in the CARES Act that was signed on March 27, 2020. Many of us are trying to wrap our minds around the myriad of new distributions, loans and other legislation that affect retirement plans. But before processing or even considering if your plan will allow for some of these optional provisions, you must know who the ‘Qualified Individual’ is who can request these benefits.

This group of individuals is very broad for new withdrawals as well as loan relief. There are basically three designations:

Someone who has been diagnosed with coronavirus disease (COVID-19), or coronavirus (SARS-CoV-2), determined by a test approved by the CDC (Center for Disease Control and Prevention).
Someone whose spouse or dependent (defined in Code section 152) is diagnosed with the virus or disease by a CDC approved test.

Someone who is experiencing adverse financial consequences as a result of being quarantined, furloughed or laid off, having work hours reduced, or being unable to work due to lack of child care due to COVID-19. Also, if the business you yourself own or operate had to close due to the virus or the disease (applies to self-employed and owner-employees).

Other factors as determined by the Secretary of the Treasury.

While the first two items do not require employees to experience adverse financial consequences, it is presumed to be the case in those instances.

You can rely exclusively on a participant self-certifying that they fall into one of the above categories. This self-certification should be in writing, signed and dated by the plan participant. Please contact your Tycor admin for specific instructions for your plan/recordkeeper. Many of our partner recordkeepers are currently updating and preparing new loan and distribution forms which include the self-certification, so no additional paperwork will be necessary.

You have choices when it comes to what withdrawals to allow, and if you are going to expand your loan program. While we are still awaiting additional guidance on Coronavirus distributions and repayment, they are only available for a limited time (from 1/1/2020 to 12/31/2020). Similarly, the loan provisions that allow participants to borrow 100% of their vested balance, up to $100,000 are only allowable for a short period of time – from March 27, 2020 through September 20, 2020. If your plan currently does not allow for loans, it would first need to be amended to allow prior to incorporating the new loan limits.

Your plan must be amended to allow these CARES act provisions. You’ll need to advise us if you will allow all or some of the optional withdrawals/enhanced loans. We sent an email to all plan sponsors that includes a fillable form. If you have not already signed and returned – please do so at your earliest convenience. The due date of the amendment is currently the end of the plan year that begins on or after January 1, 2022.

Participants may come to you looking for guidance. Just because you’ve elected to allow to broaden the availability of withdrawals and loans, does not mean they must take out the maximum. As with advice given to everyone going to the grocery store these days – ‘Don’t be a hoarder. Only buy as much toilet paper/milk/bread/meat as you can reasonably use. Leave some for the next shopper.’ The same is true with your retirement plan – don’t take the max out because you can. Take only as much as you need and keep the rest invested. Market history shows us they will rebound, but you will be unable to realize the uptick if you’ve withdrawn all your invested funds.

Got questions? Please give us a call or send an email! We are all working 100% remotely and are available as usual to you and your participants!

Stay healthy & stay safe!