Enhanced Access to Plan Loans and Hardship Distributions for Hurricane Irma Victims

The IRS issued Announcement 2017-13 granting employer-sponsored retirement plans and participants affected by Hurricane Irma liberalized requirements for obtaining hardship distributions and plan loans. This relief was similarly granted to those affected by Hurricane Harvey in IRS Announcement 2017-11.

The plans to which the guidance applies include

  • IRC Sec. 401(a) plans (e.g., 401(k)/profit sharing, money purchase, and target benefit plans),
  • 403(a) and 403(b) plans, and
  • governmental 457(b) plans.

In the case of a governmental 457(b) plan, an eligible Hurricane Irma victim will be considered to have a qualifying unforeseen emergency, which generally would be the equivalent of a hardship under one of the other plan types.

Announcement 2017-13 notes that a plan that by law and regulations could allow for loan and hardship distributions, but does not contain the proper enabling provisions, may grant hardship distributions or loans pursuant to this announcement. The timeframe during which those requirements are disregarded is the period described in IRS News Release IR-2017-150, beginning on or after September 4 or 5 (depending on disaster area), and on or before January 31, 2018. News Release IR-2017-150 also granted extensions of time for victims to complete certain other tax-related acts and filings.

Specific conditions of Announcement 2017-13 follow.

  • The relief applies to an employee or former employee whose principal residence or place of employment—or that of a lineal ascendant, descendant, dependent, or spouse—is located in the officially-declared disaster area.
  • Plan administrators may rely on the employee’s or former employee’s representations of need and amount for hardship distributions (defined benefit and money purchase pension plans may only make hardship distributions from accounts that contain employee contributions or rollover amounts).
  • Hardship distributions under the terms of this guidance must be received during the period on or after August 23, 2017, and on or before January 31, 2018.
  • Distributions for hardship under this guidance are not limited to the generally “safe harbor” hardship reasons, and the 6-month suspension of deferrals will not apply. Hardship distributions of pretax assets remain subject to taxation and to the 10 percent additional tax for pre-59½ distributions in the absence of a qualifying exemption.
  • Loan amounts remain subject to the requirements of IRC Sec. 72(p), which includes, among other things, limitations on loan amounts available based on account balance or prior loans. The date by which such loan must be executed is not defined in Announcement 2017-13.
  • Plans that must be amended to provide for hardship distributions and loans under this guidance must do so by the last day of the first plan year beginning after December 31, 2017 (last day of 2018 plan year).
  • A good faith effort should be made to observe normal procedures and documentation requirements for loans and hardship distributions. If, however, they are disregarded under these special circumstances, then as soon as practicable, a reasonable attempt should be made to assemble any documentation that would have been required (e.g., spousal consent).