"Adverse financial consequences" under CARES | Ed Slott and Company, LLC

"Adverse financial consequences" under CARES

I have a plan sponsor that is allowing COVID-19 withdrawals from its 401(k) plan, but in the communication to participants, it is stated that "adverse financial consequences under the CARES Act does not apply to consequences experienced by your spouse".

In other words, "Sorry that your spouse lost their job due to COVID-19, but YOU are still employed, so YOU cannot tap your 401(k) under CARES." I am wondering if that is what Congress really intended.

The language of Sec. 2202 states that YOU must be experiencing adverse financial consequences as a result of being quarantined, laid off, furloughed, hours reduced, stuck at home with the kids, etc....

But on the other side of the coin, you can take a COVID-19 withdrawal if your spouse tests positive for the virus. Why allow the piggybacking for the spouse's positive test but not allow piggybacking for the spouse's adverse financial consequences?

Did Congress really intend for a still-working individual to not be able to tap their 401(k) or IRA if their spouse lost their job and as a result, household income dropped by a significant amount?

True - you could say that the laid-off spouse could access their 401(k) or IRA, but that presumes that they had access to an employer plan, as well as time to make contributions (and receive matches) to accrue a decent balance. What if the furloughed spouse was new to the workforce? What if all they had access to was an IRA, and only had a few thousand dollars in it so far?

The CARES Act was rushed and will produce many inequities. That said, the IRS is expected to release more guidance and broaden the ability to qualify. In addition, in the next Stimulus bill there are likely to be many "technical corrections" of the CARES Act. As a result, qualifying for a CRD will likely become easier, but the longer this all takes the less benefit will be realized by those who are desperate for funds. Another strange provision is that reduction of hours qualifies, but not a reduction of pay rate.

Thx.  I wonder if they will likewise expand the CRD adverse financial consequences to include "stay-at-home" and "shelter-in-place" orders as the practical equivalent of a "quarantine".  It would be helpful for sales professionals who weren't laid off, furloughed, or had hours reduced, but still saw a hit in income because they could not go out and meet people face-to-face.


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