Retirement Plan Relief for Hurricanes Harvey and Irma

The Department of Labor (DOL) released guidance on August 31, 2017, for retirement savings arrangements whose administrative procedures may have been disrupted in the wake of Hurricane Harvey in the Houston, Texas, area in recent days. Additionally, the IRS is providing
special plan loan and hardship distribution options available to victims of Hurricane Harvey who participate or have participated in a qualifying retirement plan.

At the time of this writing, similar taxpayer and retirement plan relief was starting to roll out for Hurricane Irma as well. See the latest IRS developments for Hurricanes Harvey and Irma at the IRS websites, and the DOL’s Pension Benefits Guaranty Corporation (PBGC) disaster page for relief to defined benefit plans. Also see the News page for disaster-related announcements and other news.

DOL Compliance Guidance

News Release 17-1216-NAT presents additional compliance guidance for affected employee benefit plans. Also released is a set of FAQs directed to retirement plan participants and beneficiaries who are affected by Hurricane Harvey. The DOL news release includes the following four key items.

  1. The general deadline for deferral deposits and loan repayments is as soon as can reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the date they are withheld or are paid to the employer. The news release states that if a delay is due solely because of the effects of Hurricane Harvey, enforcement action will not be taken if employers and service providers act reasonably, prudently, and in the interest of employees to comply as soon as practical.
  2. A retirement plan generally must give at least a 30-day notice prior to a blackout period of more than three consecutive business days. During a blackout period, participants are unable to direct investments, obtain loans, take distributions, etc. The news release points out that regulations provide an exception to the advance notice requirement when the inability to provide the notice is because of events beyond the reasonable control of the plan administrator, and a fiduciary so determines in writing. The news release states that natural disasters, by definition, are beyond the control of a plan
    administrator, and thus, the DOL will not allege a violation solely on the basis that a fiduciary affected by this disaster failed to make the required written determination.
  3. The DOL is working with the IRS to provide relief with respect to verification procedures for plan loans and hardship distributions. It is expected that good faith practices that are satisfactory to the IRS under its previously-issued Hurricane Harvey relief in Announcement 2017-11 (described below) will be satisfactory to the DOL.
  4. The DOL news release refers plans to IRS News Release TX-2017-09 for a description of the extension of time to complete certain time-sensitive tax-related acts in disaster situations, including the filing of Form 5500, Annual Return/Report of Employee Benefit Plan. Plans eligible for the extended filing deadline may do so as late as January 31, 2018.

IRS Access to Plan Loans, Hardship Distributions

The IRS issued Announcement 2017-11 on August 30, 2017, describing special plan loan and hardship distribution options available to victims of Hurricane Harvey who participate or have participated in a qualifying retirement plan. The plans to which the guidance applies include IRC Sec. 401(a) plans (e.g., 401(k)/profit sharing, money purchase, and target benefit plans), 403(a) and 403(b) plans, and governmental 457(b) plans. In the case of a governmental 457(b) plan, an eligible Hurricane Harvey victim will be considered to have a qualifying unforeseen emergency, which generally would be the equivalent of a hardship under one of the other plan types.

Announcement 2017-11 notes that a plan that by law and regulations could allow for loan and hardship distributions, but does not contain the proper enabling provisions, may grant hardship distributions or loans pursuant to this announcement. The timeframe during which those requirements are disregarded is the period on or after August 23, 2017, and on or before
January 31, 2018. The specific conditions of Announcement 2017-11 follow.

  • The relief applies to an employee or former employee whose principal residence or place of employment—or that of a lineal ascendant, descendant, dependent, or spouse—is located in the officially-declared disaster area (IRS News Release TX-2017-09).
  • Plan administrators may rely on the employee’s or former employee’s representations of need and amount for hardship distributions (defined benefit and money purchase pension plans may only make hardship distributions from accounts that contain employee contributions or rollover amounts).
  • Hardship distributions under the terms of this guidance must be received during the period on or after August 23, 2017, and on or before January 31, 2018.
  • Distributions for hardship under this guidance are not limited to the general safe harbor hardship reasons, and the six‑month suspension of deferrals will not apply. Hardship distributions of pretax assets remain subject to taxation and to the 10 percent additional tax for pre-59½ distributions in the absence of a qualifying exemption.
  • Loan amounts remain subject to the requirements of IRC Sec. 72(p), which includes, among other things, limitations on loan amounts available based on account balance or prior loans.
  • Plans that must be amended to provide for hardship distributions and loans under this guidance must do so by the last day of the first plan year beginning after December 31, 2017 (last day of 2018 plan year).
  • A good faith effort should be made to observe normal procedures and documentation requirements for loans and hardship distributions. If they are disregarded under these special circumstances, then as soon as practicable, a reasonable attempt should be made to assemble any documentation that would have been required (e.g., spousal consent).