Recently, the Internal Revenue Service ("IRS") issued Announcement 2012-44 (the "Announcement") that permits "qualified employer plans" (such as 401(k) or 403(b)) to make loans and hardship distributions to employees or former employees whose principal residence or place of employment on October 26, 2012 was located in one of the counties that were classified as covered disaster areas because of Hurricane Sandy.

As a result of this relief, clients who currently sponsor 401(k) plans that do not provide for loans and/or hardship distributions are permitted to make these Sandy-related distributions up to the maximum amount that would be available under the Code. This Announcement applies to any hardship distribution reason and not just the "deemed" hardship reasons specified in the regulations. All plan loans must be made in accordance with requirements of Code section 72(p). When making Sandy-related plan loans or hardship distributions, plan administrators are permitted to rely on the representations employees or former employees unless the administrator has actual knowledge to the contrary.

All distributions must be made on or after October 26, 2012 and no later than February 1, 2013. With regards to plan loans, the IRS will not treat the plan as failing to follow the procedural requirements provided the plan administrator makes a good-faith diligent effort to comply with the Code or plan requirements. However, as soon as reasonably possible, the plan administrator must make a reasonable attempt to secure any missing loan documentation. For example, if a plan requires a death certificate prior to making a distribution, the Announcement concludes that the plan will not be disqualified for failing to obtain the death certificate in advance of making the distribution if it is reasonable to believe that the spouse died. However, the loan or distribution must still be made no later than February 1, 2013 and the plan administrator must make reasonable efforts to obtain the death certificate.

If your 401(k) plan currently does not permit loans or hardship distributions, in order to benefit from this relief, the plan must be amended to provide loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2012. Should you have any employees in areas that were designated Hurricane Sandy disaster and you have questions on the loans and hardship requirements, please contact your relationship attorney for more information.