A Message About Coronavirus
RMS is closely monitoring the spread of COVID-19 (the coronavirus) and making adjustments that allow us to continue to serve our customers while protecting the health and safety of our employees and their families. At this time our offices are open but we are limiting outside visitors as well as trying to conduct business via phone and email, rather than in-person meetings. In the event of any sort of mandated lock down, we do have a business continuity plan in place that allows our employees to work remotely so we may continue to be available to our plan sponsor clients.
We have had many questions from employers about the options for employees who are laid off or on furlough to take distributions from their retirement plans. The IRS has not provided specific guidance about retirement plan loans or hardship distributions as a result of the impact of COVID-19. Hardship distributions from a 401(k) plan, if allowed in the plan, can only be made if necessary to satisfy an immediate and heavy financial need. Most of our plans incorporate the IRS “safe harbor” language that defines what events qualify as an immediate and heavy financial need, including
- medical expenses for the participant, or the participant’s spouse or dependents, not covered by insurance;
- to prevent eviction or foreclosure; and
- funeral expenses for the participant’s spouse, parent, child or dependent.
The safe harbor definition also includes expenses and losses incurred by the employee as a result of a FEMA declared disaster. However, FEMA has not yet declared COVID-19 a disaster. Given the early impact of COVID-19, however, employers should monitor FEMA’s declarations for hardship distribution purposes. President Trump did recently declare a national emergency but it is NOT a FEMA disaster and doesn’t qualify as a hardship under the safe harbor definition. Otherwise, distributions from the plan for employees who are still employed are subject to the normal plan withdrawal options.
For employers who have had to make the difficult decision to terminate employees, those employees may take distributions in accordance with normal plan provisions.
Finally, for employers who have committed to making a safe harbor contribution and are now concerned that they cannot afford that commitment, we have prepared a FAQ that addresses employer’s options to suspend the safe harbor contribution and the consequences of doing so FAQ: Can I Suspend the Safe Harbor Contribution?
Of course, the landscape with respect to COVID-19 is constantly changing and we are keeping abreast of new announcements. The American Retirement Association has been working with key lawmakers to pass legislation that would provide tax relief to individuals and employers that suffer a sustained economic loss from the COVID-19 outbreak. As we receive more information, we will send further announcements. In the meantime, please do not hesitate to call your Account Executive if you have any questions or need assistance.