The Internal Revenue Service (IRS) has announced relief to allow for easier loan and hardship distributions for those impacted by Hurricane Sandy for 401(k) plans and other similar employer sponsored retirement plans. The relief applies to participants, their spouses, dependents, or lineal ascendants or descendants who live or work in a county or tribal nation that has been identified as a covered disaster area. A listing of covered disaster areas can be found at the IRS website.
Relief granted is for certain hardship distributions (other than amounts relating to Qualified Nonelective Contributions or Qualified Matching Contributions) and provides that any hardship that arises from Hurricane Sandy for the participant, spouse, or lineal ascendants or descendants will be treated as an unforeseeable emergency unless the plan administrator has actual knowledge to the contrary. Additionally, the requirement to suspend a participant from making salary reduction contributions for at least six months following a hardship distribution is not required. With respect to plan loans, plans are not required to follow plan procedural requirements if they make a good faith diligent effort under the circumstances to comply with those requirements. Hardship distributions and loans under this relief must be made on or after October 26, 2012 and no later than February 1, 2013. Plans that do not have hardship or loan provisions currently in the plan document may provide for hardship and loans under this relief with the amendment documenting the loan and hardship provisions not being required until the last day of the plan year beginning in 2013. (IRS Announcement 2012-44 )