Retirement Plan and Leave Donation Programs During States of Emergencies

by Carlton Fields

Carlton Fields

This article should interest employers offering retirement plan benefits or leave donation programs to employees affected by Hurricanes Harvey and Irma, in particular, and in various states of emergencies, in general. It focuses on the obligations of the plan sponsor and plan administrator[1] to operate employee benefit plans properly, even in times of emergency.

With respect to Hurricanes Harvey and Irma, this article is current through September 13, 2017, the date on which the IRS issued Announcement 2017-13. For updated information, we recommend the following webpages: and

Quick Takeaways

Employers can offer retirement plans and leave donation programs with features that allow access to retirement funds or paid time off to employees in need. These features can be added using standard plan operational procedures. While we can be grateful when the IRS offers “relief” from certain requirements under certain circumstances, plan sponsors must realize that, while this relief permits employers to roll out features more quickly, it may come with a potential cost of additional administrative requirements.

Distributions and Loans Without “Special Relief”

Occasionally, the IRS loosens employee benefit requirements to make it easier for those impacted by certain states of emergencies to access their retirement funds. This is a relatively recent occurrence, but for a long time, the federal government recognized that one way to encourage retirement plan participation is to give employees access to those funds prior to retirement. As such, retirement plan sponsors have several plan features they can implement to increase access to funds without any additional IRS guidance. For example:

  • 401(k) and 403(b) plans can permit in-service distributions to any participant over age 59-1/2;
  • profit sharing, 401(k), and 403(b) plans can allow a distribution of employer contributions at a younger age or after a certain number of years. For example, a profit sharing plan can allow access to any funds that have been accumulating for 2 or more years;
  • profit sharing, 401(k), and 403(b) plans can allow distributions at any age due to a hardship, and governmental and tax-exempt 457(b) plans can allow distributions at any age due to an unforeseeable emergency; and
  • 401(k), 403(b), defined benefit, money purchase pension, and governmental 457(b) plans may permit loans.

With any of the above, the plan sponsor is responsible for properly amending the plan before implementing the new plan feature, and for properly administering it. This includes notifying employees of the plan feature, obtaining the right information from participants seeking to access their funds, and properly addressing any tax withholding and reporting. In general, not only would the distribution options outlined above trigger taxation, but if the participant is younger than 59-1/2, a 10% early distribution penalty may apply. Properly-administered loans do not trigger taxation, but have more ongoing administration requirements.

A plan sponsor that wants to permit increased access to retirement plan funds because of a specific event, but does not want to allow this increased access indefinitely can use a concept sometimes referred to as an “amendment window” to restrict this level of access. This can be done by amending a retirement plan as one normally would, but providing for the amendment to no longer apply to distributions after a certain date. For example, a plan sponsor could amend its plan to provide for in-service distributions and loans that are taken during the 2017 and 2018 plan years. Under this amendment, new in-service distributions and loans would automatically be prohibited as of the 2019 plan year. The IRS used this concept, issuing relief for certain distributions and loans to those impacted by Hurricanes Harvey and Irma, but only if they are made through January 1, 2018.

Administering “Special Relief”

When the IRS eases restrictions on the access to retirement plan funds because of a temporary emergency, it often permits employers to amend plan procedures before amending plan documentation. For example, plan sponsors whose employees are affected by Hurricanes Harvey or Irma can allow loans or hardship distributions even if loans or hardship distributions are not currently permitted by the plan document. The loans or hardship distributions under this special procedure may only be issued to employees who live or work, or have children or other dependents who live or work, in a Hurricane Harvey or Irma disaster area. Plan sponsors using these procedures must amend their plan documents by December 31, 2018 for calendar-year plans (the end of the first plan year beginning after December 31, 2017). In this example, the IRS is allowing plan sponsors to implement this feature more quickly than the sponsor normally could, which can absolutely be an important benefit to participants, but not only must plan sponsors still amend the document and notify employees (the latter of which is often more difficult when the notice precedes the amendment), but the plan administrator’s obligations just increased. In addition to the standard requirements applicable to hardship distributions and loans, the plan administrator must also confirm the location of the affected individual’s residence or job location and confirm it matches the location guidelines put out by the federal government.

With Hurricanes Harvey and Irma, the IRS also reduced certain employer obligations to obtain information from a participant, allowing plan administrators to use “reasonable” methods. While this makes it potentially easier and quicker for participants who need to access retirement funds, the plan administrator must make additional “judgment calls” that may be questioned later and, in certain circumstances, must revisit the process to obtain any information that was previously permitted to be “skipped.” For example, if a distribution would normally require spousal consent, but under the circumstances the plan administrator approves the distribution without it, not only is there a risk that the administrator’s reasoning might be questioned, but the plan administrator is obligated to follow up later and obtain the consent.

The relief the IRS gives is not always consistent with what was provided previously, and is not always “relief” from all aspects one might expect. For example, there are many standard exceptions to the early distribution penalty, and one of those excludes “qualified hurricane distributions.” To be exempt from the 10% early distribution penalty, the distribution must be made to an individual described in IRS guidance on account of a hurricane identified in IRS guidance. As of September 13, 2017, not only has the IRS not included Hurricanes Harvey or Irma on this list, but the IRS noted that the tax treatment of loans and distributions, including the 10% penalty, remains unchanged.

Therefore, a plan sponsor who wants to use the IRS relief must review applicable guidance to determine what changes are permitted, what aspects remain unchanged, and what additional requirements will apply.

Leave Donation Programs

Employers can set up programs that let employees forgo some or all of their vacation time and either have that vacation time transferred to another employee, or have the value of that vacation time (normally the hours of vacation multiplied by the applicable pay rate) donated to charity. Unless the program is established to take advantage of certain exceptions, the employees donating their leave are taxed as if they received that benefit and then gifted it themselves. Presumably, employees who donate leave to charity can deduct that donation on their personal income tax return.

An employer can permit an employee to “donate” vacation time to another employee without the donating employee being taxed on it if the recipient has a “medical emergency” or was affected by a Presidentially-declared “major disaster” that requires the recipient to take additional time off from work. As of September 13, 2017, Hurricane Irma is a major disaster for individuals in certain parts of Florida, Puerto Rico, and the U.S. Virgin Islands, but not in Alabama or Georgia. Hurricane Harvey is a “major disaster” in parts of Texas, but not in Louisiana.

Under special IRS guidance, employers can allow employees to donate the value of unused leave to charitable organizations for relief to Hurricane (and Tropical Storm) Harvey victims without including those donated amounts in the donating employees’ taxable incomes. This IRS relief is only available for amounts transferred within the “window” from September 5, 2017 through January 1, 2019. This type of relief was also permitted for a limited time to help victims of Hurricanes Katrina, Sandy, and Matthew, and will probably be available for the victims of Hurricane Irma in the future. While this relief makes it easier for employees to make donations, the employer is responsible for selecting the appropriate charity and monitoring the timing of its donations.

Leave donation programs can be very helpful, and are available for employers to implement without any additional IRS guidance, but they must be drafted and operated carefully, as plan sponsors are at risk for failures to properly report, withhold, and remit income and employment taxes if these arrangements are not drafted and implemented properly.

We encourage plan sponsors to consider what employee benefit plans and plan features best suit employees, and to recognize that the answer to this question may change over time. Sponsors can revise plan provisions as necessary to address new circumstances, but it is important to recognize the impact this will have on plan administration so that the plan will continue to operate properly.


[1] “Plan sponsors” are entities that choose to offer benefits to individuals. Normally, this is the employer. “Plan administrators” are responsible for properly offering those benefits to individuals. Normally, this is also the employer, so we may use these terms interchangeably in this article.

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.

© Carlton Fields | Attorney Advertising

Written by:

Carlton Fields

Carlton Fields 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):

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.


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 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:

- 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.