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.