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Hurricane Sandy Relief – Retirement Plan Loans & Distributions

The IRS has streamlined rules that apply to loans and hardship distributions from employer-sponsored retirement plans to help victims of Hurricane Sandy and their families (Announcement 2012-44). Benefit practitioners, plan sponsors and employers are encouraged to inform plan participants of these streamlined rules.

Eligibility

Who

 

 An employee or former employee whose:

  • principal residence,
  • parent, grandparent, child or grandchild’s principal residence,
  • place of employment, or
  • parent, grandparent, child or grandchild’s place of employment

was located in the Hurricane Sandy disaster area.

Disaster area  Areas in Connecticut, New Jersey, New York or Rhode Island declared federal disaster areas. See Tax Relief in Disaster Situations for a list of eligible localities.
Date measured  Employee or relative’s residence or place of employment must have been in the disaster area on October 26, 2012.
Dates affected  The streamlined rules apply to loans and hardship distributions made October 26, 2012 - February 1, 2013.
Verification  Plan administrators may rely on an employee’s representation as to the need for and amount of a hardship distribution unless they have actual knowledge to the contrary.

 
Loans

Amount  Maximum amount of plan loans.
Eligible plans

 Any qualified plan, 403(b) or governmental 457(b) plan that:

  • can make plan loans, or
  • could make plan loans but plan document doesn’t have plan loan provisions.
No loan provision in plan  A plan that does not currently provide loans may allow Sandy-related loans.
Plan amendment dates  If plan sponsors make a Sandy-related plan loan when the loan wasn’t permitted by the terms of the plan, they must amend their plans to allow plan loan provisions by the end of the first plan year beginning after December 31, 2012.
Documentation  The plan administrator may temporarily disregard procedural requirements that otherwise apply to plan loans, but should obtain any required documentation for the loan as soon as practical.
Spousal consent  Spousal consent rules apply. However, plan administrators don’t have to obtain a death certificate prior to making the loan if they make reasonable attempts to obtain it as soon as practical.

 

Hardship distributions

Amount  Any amount eligible for a hardship distribution.
Eligible hardship  Any Sandy-related need is an immediate and heavy financial need (or an unforeseeable emergency for 457(b) plans) eligible for a hardship distribution.
6-month ban on contributions  No need to stop elective deferral contributions for six months after receiving a Sandy-related hardship distribution even if required by the plan’s terms.
Eligible plans  Any qualified plan, 403(b) or 457(b) plan that could make hardship distributions if the plan document contained hardship distribution provisions. Defined benefit or money purchase plans are generally ineligible.
No hardship provision in plan  A plan that does not currently provide hardship distributions may allow Sandy-related distributions.
Plan amendment dates  If plan sponsors make a Sandy-related hardship distribution when it wasn’t permitted by the terms of the plan, they must amend their plans to add hardship distribution provisions by the end of the first plan year beginning after December 31, 2012.
Documentation  The plan administrator may temporarily disregard procedural requirements, but should attempt to gather any documentation required by the plan’s terms as soon as practical.
Spousal consent  Spousal consent rules apply. Plan administrators may overlook a requirement to obtain a death certificate if they make reasonable attempts to obtain it as soon as practical.
Tax treatment  Generally, hardship distributions are subject to income taxes and a 10% additional tax on early distributions.

Related resources:

Page Last Reviewed or Updated: 18-Dec-2013