Loans and Hardship Distributions from Defined Contribution Plans.
In Announcement 2012-44, the IRS relaxed the rules governing loans and hardship distributions from 401(k), 403(b) and state and local government 457(b) defined contribution plans. There are several components to the relief:
- Grounds for hardship distribution: The IRS has stated that a plan will not fail to comply with the rules governing hardship distributions if it makes a distribution on account of a need arising from Hurricane Sandy.
- No limit on future contributions: The guidance also relaxes restrictions that would typically be placed on the participant’s ability to make contributions to the plan for a six-month period following a hardship distribution.
- Relaxed procedural requirements: Under the IRS guidance, the plan administrator will not be treated as failing to comply with the plan’s procedural requirements for approval of hardship distributions or loans, provided that it makes a good-faith diligent effort under the circumstances to comply and makes a reasonable effort to assemble any forgone documentation as soon as practicable.
- Plan document relief: To the extent that the plan must be amended to permit the loans or distributions pursuant to the Hurricane Sandy relief guidance, the deadline for adopting the amendment is the end of the first plan year beginning on or after January 1, 2013.
This relief applies with respect to loans and hardship distributions made under the following circumstances: (1) as of October 26, 2012, the plan participant, his or her family member or dependent lived or worked in one of the areas that has been identified as a covered disaster area in previous IRS guidance, (2) the participant takes the loan or distribution to meet a need arising from Hurricane Sandy, and (3) the loan or distribution is made by February 1, 2013. If the plan already provides for loans or hardship distributions, no amendment is necessary to make such a loan or distribution on account of a loss related to Hurricane Sandy. The Department of Labor also has confirmed that these loans and hardship distributions will not be treated as a violation of Title I of ERISA.
Delayed Employee Contributions.
The Department of Labor has announced that it will relax enforcement of the contribution timing rules with respect to employee contributions (and loan repayments) that are delayed as a result of Hurricane Sandy. In general, an employer must forward employee contributions to its benefit plans on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets and no later than the 15th business day of the month following the month in which the amount is paid or withheld. To accommodate those employers and service providers located in areas that have been affected by Hurricane Sandy, the DOL has stated that it will not seek to enforce the provisions of Title I with respect to a temporary delay in the forwarding of such payments or contributions attributable to Hurricane Sandy to the extent that the employer or service provider acts reasonably and prudently in the interest of employees and attempts to comply as soon as practicable under the circumstances.
Blackout Periods Caused By Hurricane Sandy.
Typically, a plan administrator must notify participants in individual account plans 30 days prior to any “blackout period” during which the participants will be unable to access their plan accounts. Because Hurricane Sandy qualifies as a natural disaster and thus is an event beyond the reasonable control of the plan administrator, the DOL has confirmed that, for any “blackout” period caused by Hurricane Sandy, it will not treat the failure to provide the 30 days’ advance notice as a violation of ERISA. The DOL has also stated that it will not allege a violation of the blackout regulations if a plan fiduciary did not make a written determination that the blackout was an event beyond the reasonable control of the plan administrator, as generally required under the blackout regulations.
These additional relief programs are in addition to the guidance on leave-based donation programs, tax-free relief payments, and delayed filing dates announced by the IRS earlier this month.