September 14, 2017
In virtually identical announcements (Announcement 2017-11 and 2017-13), the IRS has issued guidance providing some relief for plan participants affected by Hurricanes Harvey and Irma. The relief expands access to hardship distributions and plan loans for affected hurricane victims through January 31, 2018.
Who is a hurricane victim? The victim must either have (i) a principal residence or (ii) a place of employment in one of the areas identified for individual assistance on the FEMA website (https://www.fema.gov/disasters). The FEMA site identifies the hurricanes by state and, then under a “designated areas” link, the counties where individual assistance is approved. In determining a plan participant’s eligibility for hurricane relief, plan administrators will need to confirm the county of residence or employment of the victim. The victim may be the plan participant or the spouse or dependent or other lineal ascendant or descendant of the participant. Thus a qualifying family member can enable a participant to obtain relief even if the participant is not residing in or employed in an affected disaster county.
What is the hardship distribution relief? Additional access to hardship distributions and plan loans is allowed.
For confirmed hurricane victims, a hardship distribution may be made without satisfying many of the normal requirements for a hardship set forth in the plan. The plan administrator may rely on the participant’s representation of the need for and amount of the hardship and is not limited to the types of hardships named in the plan. The 6-month suspension of contributions following a hardship distribution may be waived. The other plan provisions for a hardship distribution apply, including the 10% additional tax for early distributions and the prohibition on using QNEC or QMAC accounts to fund a hardship distribution.
For confirmed hurricane victims, a plan loan may be made, subject to the normal limitations on amount. Plan administrators must make a good faith effort to comply with their loan procedures but a failure to follow the procedures will not be treated as a plan loan failure. For example, if spousal consent is required normally and the spouse is reasonably believed to be dead, the plan may proceed without a death certificate, while trying to obtain the death certificate at a subsequent time.
What are the limitations on relief distributions and loans?
Hardship distributions and plan loans that qualify for relief cannot be made before August 23, 2017 for Hurricane Harvey or September 4, 2017 for Hurricane Irma and, for both hurricanes, after January 31, 2018.
Relief applies to “qualified employer plans” which meet the requirements of Code Sections 401(a), 403(a) or 403(b) and could make hardship distributions or plan loans if enabling language is or were adopted for the plan. Relief is also applicable to 457(b) plans of governmental employers.
Plans that do not currently allow hardship distributions or loans may make an exception for hurricane victims and provide hardship distributions and/or loans. Such a plan must be amended no later than the end of the first plan year beginning after December 31, 2017 (December 31, 2018 for calendar year plans). Other plans should consider adopting amendments to memorialize the use of hurricane relief.
Will there be additional relief?
The IRS may revise or extend relief as it deems appropriate. Additional guidance may be issued as the recovery efforts proceed. FEMA may designate additional areas for individual assistance. Employers and plan administrators should check for additional information as time goes on.
If you have questions regarding this publication or need assistance, please contact one of our Employee Benefits Professionals, or the Nelson Mullins attorney with whom you work.
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