IRS Announces Benefits Relief for Hurricane Victims

Fall 2017Articles For Your Benefit

In the wake of Hurricane Harvey, the IRS provided some employee benefits-related relief to plan sponsors and participants. That relief was then extended to the victims of Hurricane Irma.

Relief is provided, first, by relaxation of the rules governing participant loans and hardship withdrawals from qualified retirement plans to enable taxpayers to more readily access retirement funds to alleviate financial hardships caused by the devastation. As detailed in Announcement 2017-11 (related to victims of Hurricane Harvey) and Announcement 2017-13 (for victims of Hurricane Irma), a qualified retirement plan that does not currently permit hardship withdrawals or loans may make both available immediately and will not be treated as failing to satisfy any compliance requirement, provided that an appropriate amendment is adopted no later than the end of the first plan year beginning after December 31, 2017. Additionally, if the principal residence of the participant (or of the participant’s lineals, dependents or spouse) was located in one of the counties identified for individual assistance by the Federal Emergency Management Agency (FEMA), the plan administrator may rely upon the representation made by that participant as to the need for, and amount of, a hardship distribution unless the plan administrator has actual knowledge to the contrary.

Normally, the right of the participant to make voluntary deferral contributions must be suspended for a period of six months following a hardship withdrawal.

Those who take withdrawals due to hardships arising from Hurricane Harvey or Hurricane Irma will not be subject to the six-month suspension.

However, it is important to note that no relief was provided from the 10% excise tax on early distribution.

In addition, the IRS has confirmed, in Notice 2017-48, favorable tax treatment of leave-based donation programs under which employees agree to forego vacation, sick or personal leave in exchange for contribution by their employers of the value of the unused leave to charitable organizations providing hurricane relief. As long as the contributions are made to those organizations before January 1, 2019, the employers may deduct the contributions as business expenses under Code Section 162. The employees who participate in the leave-sharing donation program may not claim a charitable deduction for the value the donated leave, but likewise will not be taxed on the value of the leave.

Finally, in recent days, both the IRS and PBGC have granted relief to hurricane affected sponsors of defined benefit pension plans, by extending the deadlines for minimum funding requirements, actuarial certifications and various notice requirements until January 31, 2018,. The deadline for applying for a funding waiver that otherwise would occur during the relief period also is extended until January 31, 2018.