The IRS announced relief to defined contribution plan participants affected by the recent catastrophic hurricanes –Harvey, Irma, and Maria. Relief was announced incrementally as the effects of the storms were realized. Plans can offer relief to their employees and certain family members who live or work in affected disaster areas and designated for assistance by FEMA. Likewise, a person living outside of the disaster areas can initiate a hardship or loan to assist a dependent who lived or worked in the disaster area.
Eligible plan participants can take a hardship without meeting the normal requirements for hardship approval, or loans. The six-month ban on contributions for those taking hardships will not apply. Additional relief has also been written in a bill that includes IRA distributions in addition to qualified defined contribution plans. Distributions of up to $100,000 in aggregate across plans and IRAs are permitted, without tax penalties. Payback for such distributions is required within a three-year period. The repayments will be treated as rollovers to qualified employer sponsored defined contribution plans and will not be subject to the 20% mandatory federal tax or the 10% early withdrawal penalty. Taxes on the distributions can be paid at once or treated as income for tax purposes if paid incrementally over a three-year period.
Specifically, for Hurricane Harvey, the “qualified hurricane distribution” is in effect for distributions taken after August 23, 2017 and before January 1, 2019. For victims of Hurricane Irma, the effective time period is after September 4, 2017 and before January 1, 2019. For victims of Hurricane Maria, the effective time period is after September 16, 2017 and before January 1, 2019. Adoption of the special provision is at the plan sponsor’s discretion. A plan amendment may be required.
The amount that an affected participant can take for a loan has also increased to $100,000; the limit of 50% of a participant’s account balance does not apply. Loan repayments can be deferred for one year, and the maximum five-year loan amortization period for non-mortgage loans can be extended for one year.
www.planadviser.com; August 31, October 9, 2017.