By Brian M. Pinheiro
In the wake of Hurricane Sandy, the IRS has issued guidance that permits individuals affected by the storm and its aftermath to access the assets in their retirement plans and individual retirement accounts. To be eligible for the special relief, the employee or former employee (or his or her spouse, dependent, or lineal ascendant or descendant) must have a principal residence or work location in one of the counties or Tribal Nations that have been identified as covered disaster areas.
Under the new IRS relief, employees or former employees may receive loans and/or hardship distributions from their 401(k), 403(b), and/or 457(b) plan accounts, subject to the following:
- Plan administrators may rely on the representations of the employee or former employee concerning the need for and amount of a hardship distribution, unless the plan administrator has actual knowledge to the contrary.
- Defined contribution plans that do not otherwise provide for hardship distributions may make Hurricane Sandy-related hardship distributions, so long as they are retroactively amended to provide for such distributions by the end of the first plan year beginning after December 31, 2012.
- Distributions may be made to those affected by Hurricane Sandy for any hardship reason, not just those enumerated in the Treasury Regulations or the current plan document.
- Post-distribution restrictions on contributions to the plan are not required, which means that those affected by Hurricane Sandy are not required to suspend their retirement plan contributions for six months following the hardship distribution.
- Hurricane Sandy-related hardship distributions must be made by February 1, 2013.
- Plan administrators are not required to follow the procedural requirements for loans and distributions (e.g., obtaining spousal consent in some cases), provided that the plan administrator makes a good-faith diligent effort under the circumstances to comply with the procedural requirements, and obtains any required documentation as soon as practicable after the fact.
Attorneys in Ballard Spahr's Employee Benefits and Executive Compensation Group can advise on how retirement plans can be used to assist those affected by Hurricane Sandy, the development of leave-based donation programs to support the hurricane victims, or any other issues related to the IRS relief programs. To learn more about the Hurricane Sandy relief programs, please contact Brian M. Pinheiro at 215.864.8511 or firstname.lastname@example.org.
Copyright © 2012 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.
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