Hurricane Sandy Relief – Retirement Plan Loans & Distributions
The IRS has streamlined rules that apply to loans and hardship distributions from employer-sponsored retirement plans to help victims of Hurricane Sandy and their families (Announcement 2012-44). Benefit practitioners, plan sponsors and employers are encouraged to inform plan participants of these streamlined rules.
Eligibility
|
Who
|
An employee or former employee whose:
was located in the Hurricane Sandy disaster area. |
| Disaster area | Areas in Connecticut, New Jersey, New York or Rhode Island declared federal disaster areas. See Tax Relief in Disaster Situations for a list of eligible localities. |
| Date measured | Employee or relative’s residence or place of employment must have been in the disaster area on October 26, 2012. |
| Dates affected | The streamlined rules apply to loans and hardship distributions made October 26, 2012 - February 1, 2013. |
| Verification | Plan administrators may rely on an employee’s representation as to the need for and amount of a hardship distribution unless they have actual knowledge to the contrary. |
Loans
| Amount | Maximum amount of plan loans. |
| Eligible plans |
Any qualified plan, 403(b) or governmental 457(b) plan that:
|
| No loan provision in plan | A plan that does not currently provide loans may allow Sandy-related loans. |
| Plan amendment dates | If plan sponsors make a Sandy-related plan loan when the loan wasn’t permitted by the terms of the plan, they must amend their plans to allow plan loan provisions by the end of the first plan year beginning after December 31, 2012. |
| Documentation | The plan administrator may temporarily disregard procedural requirements that otherwise apply to plan loans, but should obtain any required documentation for the loan as soon as practical. |
| Spousal consent | Spousal consent rules apply. However, plan administrators don’t have to obtain a death certificate prior to making the loan if they make reasonable attempts to obtain it as soon as practical. |
Hardship distributions
| Amount | Any amount eligible for a hardship distribution. |
| Eligible hardship | Any Sandy-related need is an immediate and heavy financial need (or an unforeseeable emergency for 457(b) plans) eligible for a hardship distribution. |
| 6-month ban on contributions | No need to stop elective deferral contributions for six months after receiving a Sandy-related hardship distribution even if required by the plan’s terms. |
| Eligible plans | Any qualified plan, 403(b) or 457(b) plan that could make hardship distributions if the plan document contained hardship distribution provisions. Defined benefit or money purchase plans are generally ineligible. |
| No hardship provision in plan | A plan that does not currently provide hardship distributions may allow Sandy-related distributions. |
| Plan amendment dates | If plan sponsors make a Sandy-related hardship distribution when it wasn’t permitted by the terms of the plan, they must amend their plans to add hardship distribution provisions by the end of the first plan year beginning after December 31, 2012. |
| Documentation | The plan administrator may temporarily disregard procedural requirements, but should attempt to gather any documentation required by the plan’s terms as soon as practical. |
| Spousal consent | Spousal consent rules apply. Plan administrators may overlook a requirement to obtain a death certificate if they make reasonable attempts to obtain it as soon as practical. |
| Tax treatment | Generally, hardship distributions are subject to income taxes and a 10% additional tax on early distributions. |
Related resources:
- Retirement Topics - Loans
- Retirement Topics - Hardship Distributions
- Disaster Relief for Retirement Plans and IRAs
- Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims
- FAQs - Hurricane Sandy Relief - Retirement Plan Loans & Distributions
Page Last Reviewed or Updated: 2012-11-30
