Yesterday (September 12, 2017) the Internal Revenue Service (“IRS”) announced relief designed for participants and plan sponsors affected by Hurricane Irma. The relief, which is similar to that granted for several recent natural disasters, including Hurricane Harvey, gives affected participants greater access to their retirement plan accounts.
Background. The Internal Revenue Code and IRS regulations impose significant limitations on when participants may access assets from retirement plan accounts through loans and distributions while actively employed. In addition, many plans provide for additional limitations. The IRS has provided limited relief from these restrictions for certain participants affected by Hurricane Irma.
Individuals Eligible for IRS Relief. The following individuals are eligible for the IRS’s relief:
- Individuals whose principal residence or place of employment on September 4, 2017 was in one of the Florida counties identified for individual assistance by the Federal Emergency Management Agency (“FEMA”) because of Hurricane Irma.
- Individuals whose lineal ascendant or descendent, spouse or dependent had a principal residence or place of employment on September 4, 2017 in one of the Florida counties identified by FEMA.
Individuals whose principal residence or place of employment is located in an area that is later designated for individual assistance by FEMA will be eligible for relief as of the date designated by FEMA.
Retirement Plans Eligible for Relief. Retirement plans eligible for the IRS relief include 401(k) plans, profit sharing plans, 403(b) plans and 457(b) plans.
IRS Relief Provided. The IRS announced the following relief:
- Eligible individuals may take hardship distributions due to hardships arising from Hurricane Irma from September 4, 2017 through January 31, 2018, even if the hardship would not otherwise make the individual eligible to obtain a hardship distribution.
- Participant contributions do not need to be suspended for 6 months following a hardship distribution arising from Hurricane Irma.
- Employers may temporarily permit eligible individuals to obtain loans and hardship distributions without strictly complying with the plan’s administrative and documentation requirements from September 4, 2017 through January 31, 2018, as long as the employer makes a good faith effort to comply with the plan’s requirements and makes reasonable attempts to obtain forgone documentation.
- Employers that do not currently permit loans and/or hardship distributions may permit eligible participants to take loans and/or hardship distributions as long as the plan is amended to permit loans and/or hardship distributions by the end of the first plan year beginning after December 31, 2017 (i.e., by December 31, 2018, for calendar year plans).
It is important to note that the IRS relief does not provide relief from the additional 10% tax on early distributions for eligible individuals who obtain distributions.
Potential DOL Relief. In addition to the IRS relief, we expect the DOL to provide ERISA enforcement relief related to (i) employers impacted by Hurricane Irma that are unable to timely forward participant contributions to the plan’s trust, and (ii) blackout periods caused by Hurricane Irma for which the employer did not provide a timely blackout notice. The DOL has issued this type of relief for prior natural disasters, including Hurricane Harvey.