Feature

Plans Offering Hardship Distributions or Loans Get Relief for Hurricane Victims

November 20, 2012

The Internal Revenue Service on Friday released Announcement 2012-44 that allows taxpayers adversely affected by Hurricane Sandy to take hardship distributions or loans from their retirement plans under a special set of considerations. The relief also applies to employees whose place of employment was impacted by the storm’s devastating path. To qualify under the announcement, hardship distributions resulting from Hurricane Sandy must be made on or after October 26, 2012, and no later than February 1, 2013. Below is a summary of the relief provisions:

• The IRS is relaxing certain procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with minimal red tape.
 
• The plan can ignore the restrictions that normally apply under the safe harbor hardship distribution standards, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement. However, as soon as practicable, the plan administrator must make a reasonable attempt to obtain any forgone documentation.
 
• The six-month suspension of 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.
 
• A plan that does not currently provide for hardship distributions may make Sandy-related hardship distributions pursuant to this relief provided the plan executes required amendments by the end of the fi rst plan year beginning after December 31, 2012.
 
• It provides that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent, or other dependent that lived or worked in the disaster area.
 
• The plan administrator may rely on representations from the employee or former employee as to the need for and amount of a hardship distribution (unless the plan administrator has actual knowledge to the contrary), and the distribution will be treated as a hardship distribution for all purposes under the Code and regulations.
 
• Although access to funds due to hardship has been relaxed, taxes and penalties continue to apply as per the early distribution regulations.
 
For more information, please contact your CAPTRUST Financial Advisor. 800.216.0645 | www.captrustadvisors.com
 
All Publication Rights Reserved. None of this material may be reproduced in any form without the expressed written permission of CAPTRUST: 919.870.6822. The opinions expressed are subject to change without notice. This material has been prepared or is distributed for informational purposes only and is not intended as legal, tax, or investment advice. © 2012 CAPTRUST
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