July 14, 2020

Expanded Definition for CARES Act Qualified Individual

On June 19th, the IRS issued Notice 2020-50, which provided expanded guidance for eligibility for Coronavirus-Related Distributions (CRDs) and the CARES Act participant loan rules.

We have had many inquiries from plan sponsors whose participants had spouses and other family members experience negative financial effects from COVID-19.  Those situations were not initially included for eligibility for CRDs and participant loan relief.  Nor was there relief for participants whose pay had been reduced without a corresponding reduction in hours.  These were the original rules for determining a Qualified Individual (QI) eligible for the CRD and participant loan relief options:

  • A participant who is diagnosed with the virus;
  • A participant whose spouse or dependent is diagnosed with the virus; or
  • A participant who has suffered financial loss from the pandemic because he or she:
    • Was laid off, furloughed, quarantined, or had reduced hours;
    • Cannot work due to the unavailability of childcare because of the pandemic; or
    • Owns or operates a business that has had to close its doors or reduce hours.

Now, under the new Notice, participants with financially-impacted spouses and other family members, as well as participants with reduced income, are now eligible.  Here are the new additions to the definition of a QI:

  • A participant whose pay or self-employment income is reduced due to the pandemic, or who has had a job offer rescinded or a new job’s start date delayed due to COVID;
  • A participant whose spouse or a member of his/her household has suffered the following financial effects due to the pandemic:
    • Layoff, furlough, quarantine, reduced hours, or reduced pay or self-employment income;
    • Cannot work due to childcare unavailability; or
    • Has had a job offer rescinded or the start date of a new job delayed;
  • A business owned or operated by the participant’s spouse or a member of the participant’s household has closed or reduced hours.

For this purpose, a “member of the household” is someone who shares the QI’s principal residence.  Presumably, this could include a significant other, roommate, other relative, or anyone else with whom the individual is sharing a home.

The Notice further clarifies that the plan sponsor can rely on the participant’s certification of their status as a QI, unless the plan sponsor already possesses “actual knowledge” to determine the veracity of the employee’s certification.  With the expanded definition, it would be very rare for an employer to have that knowledge.  There is no duty to inquire further. 

We have updated our CARES Act Qualified Individual Certification form, which can be requested from your Pollard Administrator.