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Fresh Relief for Hurricane Victims

By John Iekel • September 13, 2017 • 0 Comments

Part of the relief extends to Irma victims what has been provided to Harvey Victims in IRS Announcement 2017-11. The relief for Irma victims, like that extended to those who were affected by Harvey and are eligible, matches what the American Retirement Association, parent of ASPPA, had requested in its Aug. 29 letter to the IRS. In that letter, the ARA asked that the IRS expand access to retirement assets in qualified retirement plans to alleviate hardships caused by Hurricane Harvey, as had been done previously following Hurricane Sandy.

Not only does the relief permit more liberalized access to hardship withdrawals and loans by participants, plan administrators are allowed to receive documentation in support of these requests after the fact (so long as they have no personal knowledge that the request isn’t legitimate), and can offer access via hardship withdrawals and loans, even if their plan document doesn’t currently provide those, as long as it is amended appropriately within the timeframe specified in the relief. Separately, the IRS announced that employers in the affected areas in Texas and Florida have been granted more time to make minimum funding contributions to their pension plans.

Announcement 2017-13

Announcement 2017-13, which the IRS issued on Sept. 12, announces that victims of Hurricane Irma who participate in 401(k) plans, are employees of public schools and tax-exempt organizations with 403(b)s or are state and local government employees with 457(b)s may be eligible to take advantage of streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster areas affected by Hurricane Irma and designated for individual assistance by the Federal Emergency Management Agency (FEMA). For a complete list of eligible localities, visit https://www.fema.gov/disasters. To qualify for this relief, hardship withdrawals must be made by Jan. 31, 2018.

For qualifying victims of Hurricane Irma, the IRS also is relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This means that a retirement plan can allow a victim of Hurricane Irma to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lives or works in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in Announcement 2017-13.

The IRS includes an important caveat — the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10% early-withdrawal tax.

Notice 2017-49

In Notice 2017-49, the IRS, DOL and the PBGC provide additional relief in connection with certain employee benefit plans because of damage caused by Hurricane Harvey and Hurricane Irma.

Under Notice 2017-49, for any single-employer plan (other than a CSEC plan as defined in Internal Revenue Code Section 414(y)) that is an affected plan, if the date described in Code Sections 430(j)(1) or 430(j)(3) and ERISA Sections 303(j)(1) or 303(j)(3) for making a contribution for a plan year falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then the date for making such a contribution is postponed to Jan. 31, 2018.

If the date specified in Treas. Reg. §1.430(f)-1(f)(2) for making an election relating to such a plan’s prefunding balance or funding standard carryover balance falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then the date by which that election must be made is postponed to Jan. 31, 2018. If the date described in Code Sections 436(h)(2) or 436(h)(3) and ERISA Sections 206(g)(7)(B) or 206(g)(7)(C) of ERISA for certification of the adjusted funded target attainment percentage falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then the date by which that certification must be made is postponed to Jan. 31, 2018.

For any CSEC plan that is an affected plan, if the date described in Code Sections 433(c)(9) or 433(f) and ERSIA Section 306(c)(9) or 306(f) for making a contribution for a plan year falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then the date for making such a contribution is postponed to Jan. 31, 2018. For any such plan that is an affected plan, if the date described in Code Section 433(j)(4) and ERISA Section 306(j)(4) by which the plan actuary must make the required certification falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then the date by which that certification must be made is postponed to Jan. 31, 2018. If the deadline described in Code Section 433(j)(3) and ERISA Section 306(j)(3) by which a plan sponsor of such an affected plan that is in funding restoration status must adopt a funding restoration plan falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then that deadline is postponed to Jan. 31, 2018.

For any single-employer plan that is an affected plan, if the deadline for furnishing a notice required under ERISA Section 101(j)(1) or (2) falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then the date by which that notice must be furnished is postponed to Jan. 31, 2018.

For any plan for which this notice extends a due date described in Code Section 430(j)(1) and ERISA Section 303(j)(1), contribution receipts are taken into account in determining the variable rate premium if made on or before the date the plan’s premium is filed.

For affected plans, if the date described in Code Section 412(c)(5) and ERISA Section 302(c)(5) for applying for a waiver for an affected plan falls within the period beginning on the initial relief date and ending on Jan. 31, 2018, then that deadline is postponed to Jan. 31, 2018.

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