Last week the IRS acted swiftly to provide much needed relief for the thousands affected by Hurricane Harvey. More specifically, Announcement 2017-11 greatly relaxes loan and hardship distribution rules in an effort to help those individuals and their families in a time of great need. If you have questions about how to use this flexibility for your employees, please let us know. For additional context, here are some of the Announcement’s key aspects.
Which individuals are covered by the relief? It applies to an employee or former employee: (i) whose principal residence on August 23, 2017, was located in one of the Texas counties identified for individual assistance by FEMA because of the devastation caused by Hurricane Harvey; (ii) whose place of employment was located in one of these counties on that applicable date; or (iii) whose lineal ascendant or descendant, dependent, or spouse had a principal residence or place of employment in one of these counties on that date. These counties are available at https://www.fema.gov/disasters . The Announcement anticipates that FEMA may add additional counties in the near future.
To what events does the relief apply? It applies to loans, or a hardship distribution for a need arising from Hurricane Harvey. Note that this is the case for “any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution restrictions are required.”
Does the relief impact the limit on the amount that may be distributed? Importantly, no. The amount available for a hardship distribution remains limited to the maximum amount that would be permitted to be available for a hardship distribution under the plan. Also, plan loans must still comply with any dollar limits applicable under Tax Code section 72(p).
How long does the relief last? In general terms, it runs from August 23, 2017, through January 31, 2018.
What steps should a plan sponsor take?
- First, work with your advisor and recordkeeper to explore the relief in greater detail.
- Second, develop a plan for communicating with affected employees. Although in normal circumstances we are not proponents of plan loans and hardship distributions, we also realize that these are circumstances are dire for many (and far from normal).
- Third, if you do take advantage of the relief, be sure to work with your advisor and recordkeeper to adopt a retroactive Plan amendment reflecting the applicable relief. Such an amendment must be adopted by the end of the first plan year beginning on or after January 1, 2018.
- Finally, in the event the relief and urgency results in any procedural and/or documentation shortcomings, rectify those shortcomings as quickly as possible.
The IRS packed a lot of details into an Announcement of slightly more than three pages. As you wish to further explore those details, please let us know.
Matthew loves to write. He also loves to think, though he’s probably a better writer than a thinker. He does not like to be on camera or in videos. This blog will allow him to write, challenge his ability to think, and, from time to time, test him with video blog entries.
He has a unique blend of legal and practical experience that helps us to serve our clients well. On the one hand, he has more than 12 years of private legal practice experience focusing exclusively on employee benefits, including time as a partner in an employee benefits boutique where he has represented clients in front of the DOL and IRS. On the other hand, he holds his FINRA Series 7 and 66 registrations and serves as the Director of ERISA Services for Qualified Plan Advisors.
Matthew likes to stay active. He provides fiduciary training, Investment Policy Statement design, and vendor oversight to our clients. He is an active member of the Employee Benefits Committee of the American Bar Association Tax Section, serving as Chair of the Defined Contribution Plans Subcommittee. He also has been appointed to the IRS TE/GE Gulf States Council and is a frequent speaker on regulatory developments, fiduciary responsibilities, and retirement readiness.
Most importantly, he stays active with his family. His wife, Laura, is the founder of REbeL, Inc., a not-for-profit organization. His three young boys are mixed up in far too many sports, and they enjoy traveling, watching college football, running with Dad, and rooting for the Huskers.
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