The IRS announced a new rule impacting employees, their family members, and 401(k) and 403(b) plans. The new rule may or may not impact your employees, but nonetheless it is good to be aware just in case (as there have been lawsuits already for mismanaging this rule).

What’s this new rule?

The IRS has announced that it is extending relief to plan participants whose spouses are laid off and that take COVID-related distributions or loans from their retirement accounts. In other words, if you have an employee whose spouse or a household member is impacted by the COVID-19, the employee can take a withdrawal from your 401(k) or 403(b) up to $100,000. Prior to this new rule, retirement plan distributions was allowed only if the employee himself/herself was impacted by COVID-19 (it now extends the rule to family members).

How is this new rule different?

The rule is not so new, but rather an extension of the CARES Act retirement plan relief. So not many changes in this IRS Notice 2020-50 other than the fact that the CARES Act retirement plan relief is extended to family members of the employee.

So, who is a “qualified person” under the extended rule?

Glad you asked. Under the new rule (IRS Notice 2020-50), a “qualified individual” is anyone who:

• is diagnosed with the virus SARS-CoV-2 or the Coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
• whose spouse or dependent is diagnosed with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
• experiences adverse financial consequences because the individual, the individual’s spouse or a member of the individual’s household experienced the following due to COVID-19:
  • being quarantined;
  • being furloughed;
  • being laid off;
  • having work hours reduced;
  • being unable to work due to lack of childcare;
  • closing or reducing hours of a business that they own or operate;
  • reduced pay or self-employment income; or
  • having a job offer rescinded or start date for a job delayed.

IRS Notice 2020-50, issued on June 19, can be found here.