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IRS Expands Definition of Qualified Individual for Loans and Coronavirus-Related Distributions under the CARES Act

Notice 2020-50 provides additional guidance to taxpayers and sponsors of qualified retirement plans regarding coronavirus-related distributions and loan extensions under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among the guidance included in Notice 2020-50 are the following three items of special importance to plan sponsors:

  • Notice 2020-50 expands the definition of “Qualified Individual” for purposes of eligibility to receive a coronavirus-related distribution or special loan treatment to also include three new categories of individuals:
    • an individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
    • an individual whose spouse or a member of the individual’s household (as defined below) is quarantined, furloughed or laid off, or has work hours reduced due to COVID-19, is unable to work due to lack of childcare due to COVID-19, has a reduction in pay (or self-employment income) due to COVID-19, or has a job offer rescinded or the start date for a job delayed due to COVID-19; or
    • an individual who experiences the closing or reduced hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.
  • Notice 2020-50 provides express guidance describing a permissible method to delay payments under, and subsequently reamortize, an outstanding plan loan to a Qualified Individual.
  • Notice 2020-50 also provides that a coronavirus-related distribution is considered to be a hardship distribution for purposes of the Code Section 409A rule permitting cancellation of an employee’s deferral elections under a nonqualified deferred compensation plan.

Notice 2020-50 is available here.

The lawyers of our Employee Benefits and Executive Compensation Practice Group are readily able to assist companies on a nationwide basis with implementing sophisticated benefit plans and providing answers to their most challenging compensation issues. Additionally, our lawyers are well aware of the daily employee benefits challenges facing companies of all sizes and are capable of helping in-house lawyers and human resources personnel with the day-to-day advice and guidance necessary to properly administer employee benefits plans.

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