IRS Eases Hardship Distribution and Loan Rules for Victims of Hurricane Sandy

On November 16, the Internal Revenue Service (IRS) issued Announcement 2012-44, which contains guidance providing streamlined plan procedures for loans and hardship distributions to victims of Hurricane Sandy through Feb. 1, 2013.

A hardship distribution or loan for a need arising from Hurricane Sandy may be made under these streamlined procedures from a “qualified employer plan” to an employee or former employee whose:

  • principal residence was located in one of the counties or Tribal Nations that have been identified as covered disaster areas because of the devastation caused by Hurricane Sandy;
  • place of employment was located in one of the affected counties or Tribal Nations; or
  • lineal ascendant or descendant, or dependent or spouse, had a principal residence or place of employment in one of the affected counties or Tribal Nations.

Covered disaster areas for these purposes are identified in the News Releases issued by the IRS for Victims of Hurricane Sandy, which are found on at: —

For these purposes, a “qualified employer plan” is a plan which is otherwise allowed to make hardship distributions (or participant loans, as applicable), regardless of whether the Plan presently has provisions authorizing hardship distributions or loans.

The streamlined procedures apply to hardship distributions and loans made between October 26, 2012, and February 1, 2013 to the individuals described above. Requirements for these hardship distributions have been relaxed in the following ways:

  • Hurricane Sandy is treated as an “unforeseeable emergency” for purposes of distributions or loans from such plans. Distributions, therefore, may be made for any hardship of the employee, not just the usual safe harbor hardship events provided in the regulations under Section 401(k) of the Internal Revenue Code (Code).
  • No post-distribution contribution restrictions, such as suspension of deferrals, are required.
  • The distributing plan need not presently provide for hardship distributions (or participant loans, as applicable), as long as the plan is amended to provide for hardship distributions no later than the end of the first plan year beginning after December 31, 2012.
  • The plan’s procedural requirements for the distributions (or loans, as applicable) may be disregarded for the distributions, if the plan administrator:
    • makes a good-faith diligent effort under the circumstances to comply with the requirements; and
    • makes a reasonable attempt, as soon as practicable, to assemble any forgone documentation.

The IRS provides an example, in which the inability of a participant to produce a death certificate in order to prove the death of a spouse (where spousal consent would be required for a loan or distribution) would not be an impediment to receiving a loan, if it is reasonable for the plan administrator to believe, under the circumstances, that the spouse is deceased, and the plan administrator makes reasonable efforts to obtain the death certificate as soon as practicable.

The following requirements are not relaxed for these hardship distributions:

  • The hardship distribution may not exceed the maximum amount permitted to be available for a hardship distribution under the plan under the Code and regulations under normal circumstances.
  • Distributions may not be made from QNEC or QMAC accounts or from earnings on elective contributions.
  • In general, the normal spousal consent rules continue to apply.

If you have any questions regarding the application of these streamlined procedures to your plan, please contact the Trucker Huss attorney with whom you normally work.