CLIENT ALERT: IRS Announces Relief for Victims of Hurricane Sandy
On November 16, 2012, the IRS released Announcement 2012-44 (the “Announcement”), which provided broad relief to participants in qualified retirement plans such as 401(k) plans, profit sharing plans and stock bonus plans, and participant family members (child, parent, spouse or dependent) who were adversely affected by Hurricane Sandy by relaxing the rules for obtaining a loan and hardship distribution from those plans.
The Announcement provides that a qualified retirement plan may make a loan or, between October 26, 2012 and February 1, 2013, a hardship distribution, for any need arising from Hurricane Sandy to an employee or former employee (or child, parent, spouse or dependent of such employee or former employee) whose principal residence or place of employment on October 26, 2012 was located in a federally designated disaster area on that date. A plan administrator is permitted to rely upon representations from the employee or former employee as to the need for, and amount of, the hardship distribution, unless the plan administrator has actual information to the contrary.
While the amount of the hardship distribution is unaffected by the Announcement, the hardship distribution may be made for any hardship of the employee, not just those hardships listed in the regulations. Further, any employee receiving a hardship distribution will not be prohibited from making elective deferrals to a 401(k) plan. The Announcement does not address whether participants must first request loans before requesting a hardship distribution.
Qualified retirement plans that do not provide for loans or hardship distributions may make loans and hardship distributions, provided that the plan is amended by the end of the first plan year beginning after December 31, 2012 (December 31, 2013 for calendar year plans) to provide for loans and hardship distributions. A qualified retirement plan will not be treated as failing to satisfy its requirements for employees to obtain loans or hardship distributions merely because these requirements are disregarded by the plan for the period starting October 26, 2012 and ending February 1, 2013, with respect to distributions made pursuant to the Announcement, provided that the plan administrator makes a good faith effort to comply with the requirements, including, as soon as practicable, obtaining the documents that it had not received during the period of relief (e.g., spousal consent).
The Department of Labor announced that it will not deem any person to be in violation of ERISA solely because that person has complied with the Announcement.
If you have any questions regarding the relief for Hurricane Sandy victims with respect to their qualified retirement plans or plans of their spouses, children or parents, please contact the Olshan attorney with whom you regularly work or an attorney listed below.