IRS and DOL issue retirement plan relief for hurricane victims

by Dentons
Contact

Dentons

The Internal Revenue Service (IRS) has provided welcome relief to individuals affected by Hurricanes Harvey and Irma. The relief permits plan sponsors to temporarily relax restrictions on hardship withdrawals, participant loans and other withdrawals from certain retirement plans. This will allow victims of Hurricanes Harvey and Irma quicker access to funds in their retirement accounts to assist with storm recovery. The IRS has also issued guidance that allows employees to relinquish vacation, sick or personal leave in exchange for cash payments by their employer to charitable organizations providing relief for victims of Hurricanes Harvey and Irma.

In addition, the Department of Labor (DOL) has issued guidance that may be helpful to employees, plan sponsors and others with responsibility for administering retirement and other plans.

IRS Announcements 2017-11 and 2017-13 provide relief to sponsors of "qualified employer plans" (which includes Section 401(k) plans, Section 403(b) plans and Section 457(b) plans of states or political subdivisions) with respect to hardship withdrawals and loans to employees or former employees who were impacted, or whose families were impacted, by the recent hurricanes.

Eligibility for IRS relief

The IRS guidance relaxes restrictions on hardship withdrawals and loans granted to employees or former employees whose principal place of residence or place of employment on the eligibility date—August 23 in the case of Hurricane Harvey, September 4 in the case of Irma—was in one of the Texas or Florida counties identified by the Federal Emergency Management Agency (FEMA) for assistance. The relief extends to employees and former employees whose lineal ascendant or descendent, dependent or spouse had a principal residence or place of employment in one of the counties on the relevant eligibility date. The list of eligible counties is available on FEMA's website.

Hardship withdrawal relief

The following relief applies to hardship withdrawals made to eligible individuals on or after the applicable eligibility date, and not later than January 31, 2018:

  • Qualified employer plans that do not currently permit hardship withdrawals may allow withdrawals under the relief. Note, however, that defined benefit and money purchase pension plans may not permit such withdrawals other than from a separate account, if any, containing employee contributions or rollover amounts.
  • Plan administrators can rely on representations of the employee or former employee regarding the need for and the amount of the hardship, unless the plan administrator has actual knowledge to the contrary.
  • Withdrawals are not limited to the usual "safe harbor" events listed in the regulations (i.e., medical expenses, purchase of a principal residence, tuition, prevention of eviction, burial or funeral expenses, repair of home). Thus, for instance, funds may be used for food and shelter, or to replace a damaged vehicle.
  • Salary deferrals of the employee are not required to be suspended for six months after a withdrawal.

Loan/distribution relief

A plan, including one that does not currently permit loans or in-service distributions, will not be treated as failing to follow procedural requirements imposed by the plan merely because the plan administrator disregards such requirements with respect to loans (other than normal loan requirements, such as amount limitations) and distributions made to affected individuals on or after the applicable eligibility date, and not later than January 31, 2018, so long as the plan administrator makes good-faith, diligent efforts under the circumstances to comply with those requirements. In addition, the plan administrator must, as soon as practicable, make reasonable attempts to assemble any missing or omitted documentation. 

The IRS provided this example: If spousal consent is required for a plan loan or distribution unless a death certificate of the spouse is provided, the plan will not be disqualified for failing to operate in according with its terms if it makes a loan or distribution to an affected individual in the absence of a death certificate, if it is reasonable to believe that the spouse is deceased and the loan or distribution is made no later than January 31, 2018. As noted, the plan administrator must make reasonable efforts, as soon as practicable, to obtain the death certificate.

Leave-based donation payments

The IRS also announced in Notice 2017-52 that an employee who agrees to forgo vacation, sick or personal leave in exchange for his or her employer making a cash payment to a charitable organization supporting hurricane relief will not be taxed on such contribution, and the contribution is not required to be reported on the employee's Form W-2, as long as the contribution is made before January 1, 2019. The IRS confirmed that employees will not be considered to be in constructive receipt of such amounts by virtue of the right to make such an election. Employees may not claim a charitable deduction with respect to such amounts. (Note that this concept is different than a leave-sharing program pursuant to which employees may donate paid time off to colleagues who may be adversely impacted by the disasters.)

DOL relief

The DOL also issued guidance with respect to certain plan administration difficulties arising out of Hurricane Harvey. Specifically, the DOL has indicated:

  • It will not, solely on the basis of a failure attributable to Harvey, seek to enforce the normal timing requirements for deposits of salary deferral contributions into a plan's trust with respect to a temporary delay in forwarding such contributions, provided the employer and service provider act reasonably and prudently, and in the best interests of employees, to comply as soon as practicable.
  • Recognizing that participants and beneficiaries may encounter difficulties meeting deadlines for filing benefit claims and COBRA elections, the DOL directs plan fiduciaries to make reasonable accommodations to prevent the loss of benefits and to minimize the possibility of individuals losing benefits because of a failure to comply with applicable deadlines.
  • Noting that full and timely compliance by plans and insurance issuers may not be possible, the DOL's approach to enforcement will emphasize compliance assistance and will include grace periods and other relief where appropriate, including when physical disruption to a plan or provider's place of business makes timely compliance impossible.

It is anticipated that the DOL will issue similar guidance with respect to those affected by Hurricane Irma.

Takeaways

  • Use of the IRS guidance is optional. Plan sponsors, particularly those with substantial employee populations affected by the hurricanes, will need to quickly decide whether to offer some or all of such relief.
  • Sponsors should contact their plan record-keepers to discuss administrative procedures for making relief available.
  • Sponsors wishing to make such relief available should consider distributing an appropriate communication to make affected individuals aware of relief available to them.
  • To the extent a plan sponsor offers relief, its retirement plan must be amended to reflect the relief offered no later than the last day of the plan year beginning after December 31, 2017.
  • Sponsors should discuss with their service providers any procedures to be implemented pursuant to DOL relief guidelines, such as the handling of late COBRA or other notice or election forms by participants.
  • Sponsors should identify any compliance failures as soon as possible so that immediate and reasonable corrective measures can be taken.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.