The IRS provided relief (Announcement 2012-44) to victims of Hurricane Sandy who participate in qualified retirement plans. Under this announcement, qualified plans may make loans and hardship distributions to affected participants and their families, even if the plans' written documents do not currently allow for them. Affected participants include those who on Oct. 26, 2012, lived or worked in areas identified as federally declared disaster areas. A list of these areas can be found on the IRS site.
Under this relief, a plan may provide hardship distributions to participants, even if the plan's written document does not currently allow for hardship distributions. The plan sponsor may rely on a representation from the participant regarding the need for, and amount of, a hardship distribution, unless the plan administrator has actual knowledge to the contrary. The amount of the hardship distribution is limited by the maximum amount permitted to be available for a hardship distribution under the tax code and regulations. This relief, however, applies to all hardships of the participant and his or her family, not just the types enumerated in the regulations. Affected participants are not subject to the rule that prohibits participants from making contributions to a plan for at least six months after receiving a hardship distribution. To qualify for this relief, the hardship distribution must be made because of hardship resulting from Hurricane Sandy and must be taken on or after Oct. 26, 2012, and on or before Feb. 1, 2013. These hardship distributions can be included in the participant's gross income, but are not subject to the additional 10% tax under Section 72(t).
This relief also applies to plan loans. The plan sponsor may disregard the plan's procedural requirements for plan loans for any period beginning on or after Oct. 26, 2012, through Feb. 1, 2013. The plan administrator, however, must make a good-faith diligent effort under the circumstances to comply with those procedural requirements. Also, as soon as is practicable, the plan administrator must make a reasonable attempt to assemble the required documentation.
For this relief to apply to hardship distributions and plan loans, a qualified retirement plan that does not provide for a loan or hardship distribution must be amended to provide for them no later than the end of the first plan year beginning after Dec. 31, 2012.
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