IRS and DOL Provide Relief for Plan Participants Affected by Hurricane Sandy

by Reed Smith

[authors: John D. Martini, Dennis R. Bonessa, Dodi Walker Gross, Allison Warden Sizemore]

On November 16, 2012, the Internal Revenue Service (the “IRS”) released Announcement 2012-44, which relaxes certain procedural requirements for plan loans and hardship withdrawals to participants affected by Hurricane Sandy. The U.S. Department of Labor (the “DOL”) followed suit on November 20, 2012 with related relief, plus additional relief for those affected by the disaster.

Plans and Participants Eligible for IRS Relief

Announcement 2012-44 provides relief for loans and hardship withdrawals processed between October 26, 2012 and February 1, 2013 for participants with a principal residence or place of employment within a federally-declared disaster area as of October 26, 2012, or who had a lineal ascendant or descendant, dependent, or spouse meeting those requirements. IRS relief applies to plans established under Sections 401(a) (including 401(k) plans), 403(a), and 403(b) of the Internal Revenue Code of 1986 (the “Code”), and Section 457(b) plans of state and local governments.


Qualified employer plans that do not offer loans or hardship withdrawals (but are eligible to) may offer such distributions immediately for Hurricane Sandy relief, provided the plan is amended to authorize the hardship withdrawal and/or loan by the end of the first plan year beginning on or after December 31, 2012 (December 31, 2013 for calendar year plans).

The following additional relief is available for qualifying distributions: 

  • Eligible plans are not required to enforce the six-month suspension of elective deferrals after a hardship withdrawal.
  • Eligible plans may permit hardship withdrawals on account of any need associated with Hurricane Sandy (it need not be one of the IRS’s “safe harbor” events).
  • In determining whether the participant has a financial hardship and the amount of the financial need, the administrator may rely on the participant’s representation (unless known by the administrator to be false).
  • Analogous relief is provided for distributions on account of unforeseeable emergency under a 457(b) plan of a governmental employer.
  • Plan administrators may process loans and hardship withdrawals for qualifying individuals before all of the Code’s procedural requirements are satisfied if the administrator makes a good faith diligent effort under the circumstances to comply, and subsequently takes reasonable action to complete all procedural steps.

    Example: a plan may process a hardship withdrawal on account of a family member’s death before obtaining a copy of a death certificate if it is reasonable for the plan administrator to believe the person is deceased, and reasonable efforts are taken to obtain it after the withdrawal is processed.
  • The DOL confirmed that it will not treat any person as violating the Employee Retirement Income Security Act of 1974 (“ERISA”) by reason of utilizing this IRS guidance.

Announcement 2012-44 did not increase the amounts generally available for hardship withdrawals or loans, nor did it address the 10% early distribution penalty that generally applies to hardship withdrawals taken by participants who are under age 59½.

Additional DOL Relief

In addition to confirming that no fiduciary violation occurs by using the IRS’s Hurricane Sandy relief, the DOL provided additional relief on November 20, 2012. First, employers and other service providers that delay remitting participant deferrals and loan repayments because of complications associated with Hurricane Sandy will not be considered in violation of ERISA, so long as they comply as promptly as practicable and otherwise act reasonably, prudently, and in the best interest of plan participants. Blackout notices are not required for disruptions in participant-directed investments caused by Hurricane Sandy. The DOL also acknowledged challenges to both plans and participants associated with the storm (e.g., failure to timely comply with claims procedures or provide COBRA notices or elections) and supported a general rule that reasonable accommodations should be made and regulatory requirements should be completed as promptly as possible under the circumstances.

If you would like to take advantage of IRS or DOL relief for those affected by Hurricane Sandy, please contact one of the authors or the Reed Smith attorney with whom you usually work.

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.

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