As we all know, Hurricanes Harvey, Irma and Maria severely impacted parts of Texas, the southeastern United States and Puerto Rico causing billions of dollars of damage. To help victims recover, Congress, the IRS, and the Department of Labor have issued special retirement plan relief for employers and participants located in those areas. Employers sponsoring retirement plans (401(k), 403(b), governmental 457(b) and similar plans) may want to make use of these relief provisions which offer

  • Extensions of deadlines for filings and deposits by affected employers and
  • Temporary relaxation of taxation, distribution and loan rules allowing easier access to retirement accounts for affected participants

This update gives a brief overview of the retirement plan relief currently available.

Reason to act now

For employers – deadline extensions are automatic. Key for employers = be aware of available extensions.

For participants – relaxed access to retirement accounts is available only for accounts in plans that the sponsoring employer amends to make the relief available. And, the relief window is temporary. For employers who choose to expand retirement fund access, prompt communications and actions are key.

What actions are needed?

To offer hurricane relief to affected participants employers need to take the following actions:

  • Understand and choose which relief options will be offered
  • Communicate the chosen relief options to participants
  • Establish procedures with administrators and financial institutions to process requests
  • Have plans amended by applicable deadlines to reflect the relief features offered

What special retirement plan hurricane relief is available to those affected?

Employers:

  • Tax filing and payment deadlines – generally delayed until January 31, 2018
  • Late deposits (participant contributions & loan repayments) and late blackout notices – may be eligible to avoid fiduciary violation penalties from DOL (conditions apply)
  • 20% tax withholding, notices & direct rollover rules – waived for “qualifying hurricane distributions”

Participants – IRS relief – through January 31, 2018

  • New hardship distributions and loans – 401(k), 403(b), governmental 457(b) and similar plans
    • Documentation standards relaxed
    • Hardship distributions – types of “immediate need” situations expanded, persons suffering the need expanded to include “impacted family”
    • IMPORTANT- 10% early withdrawal penalty not waived
  • Required distributions – i.e., RMDs, small balance payouts, forced normal retirement age payouts
    • Plans won’t be disqualified for making required distributions late so long as reasonable good faith efforts were made to accomplish the required distribution on time

Participants – Congressional relief – expires January 1, 2019 – Disaster Tax Relief and Airport and Airway Extension Action of 2017

  • Qualifying hurricane distributions
    • Exempt from 10% early withdrawal tax penalty (i.e., withdrawals before age 59 ½)
    • Tax-free rollover within 3 years of distribution
    • Tax spread over 3 years (at participant’s option – for those who don’t choose rollover)
    • Exempt from 20% tax withholding
    • Maximum “qualifying” distribution (from all plans & IRAs) = $100,000
  • Relaxed plan loan rules
    • 100% of vested account up to $100,000 (instead of 50% of vested account up to $50,000)
    • Repayment deadline extended one year for certain loan repayments
  • Tax-free re-contribution for cancelled home purchases
    • Plan withdrawals for home purchases or construction received after February 28, 2017 but before September 21, 2017 can be re-deposited to plan where home purchase or construction was cancelled because of Hurricane Harvey, Irma or Maria.
    • Redeposit treated as a tax-free rollover

The IRS is likely to issue additional guidance on these topics in the next several weeks (or months). In the meantime, if you need more information or would like assistance amending your plans, notifying participants, or the like, please contact one of our tax lawyers specializing in employee benefits and retirement plans.

Email Sharon Quinn Dixon Email Carol L. Myers |  Email Andrew W. McLaughlin