In order to be eligible for this treatment, an employee or former employee must have had a principal residence... which was located in one of the Texas or Florida counties identified for individual assistance by the Federal Emergency Management Agency.
On August 30, 2017, and September 12, 2017, the Internal Revenue Service (IRS) issued Announcements 2017-11 and 2017-13, which give employers guidance on the ability of qualified employer plans to provide plan loans and hardship distributions to plan participants who were affected by Hurricanes Harvey and Irma.
The various laws relating to qualified employer plans impose a number of limitations on the permissibility of loans and hardship distributions. For example, the Internal Revenue Code (Code) provides that one of the few ways elective deferrals may be distributed to employees is on account of a hardship. The Code and regulations also require that in order to make a loan or a hardship distribution, a plan must contain language authorizing the loan or hardship distribution. Finally, plan provisions and regulations establish verification procedures that a plan must follow before loans or hardship distributions can be made.
As described in the IRS Announcements, a qualified employer plan will not be treated as failing to satisfy the requirements under the Code or regulations merely because the plan makes a loan or a hardship distribution for a need arising from Hurricanes Harvey or Irma. In order to be eligible for this treatment, an employee or former employee must have had a principal residence on August 23, 2017, for victims of Harvey or on September 4, 2017, for victims of Irma, which was located in one of the Texas or Florida counties identified for individual assistance by the Federal Emergency Management Agency. This loan and hardship distribution relief also applies to a plan participant’s lineal ascendant or descendant, dependent or spouse who had a principal residence or place of employment in one of these identified areas as of the applicable dates. Plan administrators may rely upon representations from the plan participant as to the need for and amount of a hardship distribution, unless the plan administrator has actual knowledge to the contrary, and the distribution is treated as a hardship distribution for all purposes under the Code and regulations.
The amount available for a hardship distribution is limited to the maximum amount that would be permitted by the plan under the Code and regulations. However, the relief provided by the IRS Announcement applies to any hardship of the participant, not just the types enumerated in the regulations, and no post-distribution contributions restrictions are required (generally deferrals are not permitted during the six-month period following a hardship distribution).
If an employer’s plan document does not currently provide for loans or hardship distributions, an employer can nevertheless allow Hurricane Harvey and Hurricane Irma victims to take a loan or hardship distribution as long as the employer’s qualified plan is amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2017. To qualify for this relief, a hardship distribution must be made on account of a hardship resulting from Hurricanes Harvey or Irma and be made no later than January 31, 2018.
In addition, a retirement plan will not be treated as failing to follow procedural requirements for plan loans or distributions imposed by the terms of the plan merely because those requirements are disregarded for any period beginning on or after September 4, 2017, and continuing through January 31, 2018, with respect to loans or distributions to individuals impacted by the IRS Announcement, provided the plan administrator makes a good faith diligent effort under the circumstances to comply with those requirements (including a reasonable attempt to assemble any forgone documentation).
Employers who sponsor a qualified retirement plan with participants impacted by Hurricanes Harvey and Irma should ensure that they allow such participants to take advantage of the relief provided for under IRS Announcements 2017-11 and 2017-13.