“We permitted coronavirus related distributions (CRDs) under the CARES Act in our 403(b) plan. We had a participant who completed her paperwork before the recordkeeper-imposed deadline to complete CRDs prior to year-end. However, she did not actually receive her check until January 5th due to a question the recordkeeper had about the distribution. Since the year-end deadline for CRDs was not extended, could I have a compliance issue here?”
Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Unfortunately, the IRS did not address this situation in any of its guidance – i.e., where all requirements to receive the distribution were met prior to the December 30 deadline, but the participant did not actually receive the funds until later.
As you note, the year-end deadline was not extended; the latest IRS guidance on Coronavirus Aid, Relief and Economic Security (CARES) Act distributions, Notice 2020-50, affirmed that the CARES Act “defines a coronavirus-related distribution as any distribution from an eligible retirement plan made on or after January 1, 2020, and before December 31, 2020.” Having said that, just because the participant did not receive her check until January 5th might not mean that the distribution was not “made” before December 31st. If the recordkeeper normally uses the date of the request or the date the check is cut as the date of distribution, and reports the distribution consistent with that interpretation, it is likely reasonable to follow a consistent approach here.
The Experts suggest that you contact the recordkeeper and request a copy of the transaction confirmation. If the transaction date on the confirmation (for reporting purposes) is on or prior to December 30th, then it may be reasonable to treat the distribution as a valid CRD, assuming that all the other CARES Act provisions regarding the distribution were followed. In the event that the date is on or after December 31st, the distribution is most likely not a CRD, meaning it will need to be reviewed to determine whether or not the distribution would have otherwise satisfied the plan’s distribution rules. If not, this will likely be an operational defect that will require correction, and retirement plan counsel well-versed in such matters should be contacted.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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