Retirement Spotlight: 2017 Hurricane Disaster Relief Guidance for Employers with Retirement Plans

The Internal Revenue Service (IRS), Department of Labor (DOL), and Pension Benefit Guaranty Corporation (PBGC), have extended many tax-related deadlines for hurricane victims in the wake of Hurricanes Harvey, Irma, and Maria. Congress then passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 to provide additional relief. What this means to you, your plan, and your participants will vary, so you’ll want to be aware of a few key takeaways.

 

Qualified Hurricane Distributions

The legislation passed by Congress permits a special distribution type: “qualified hurricane distribution.” Individuals whose principal residence is within a presidentially declared disaster area affected by Hurricane Harvey, Irma, or Maria—and who have sustained an economic loss as a result—are eligible to request qualified hurricane distributions from their IRA or employer-sponsored retirement plan (plan permitting).

Qualified hurricane distributions are distributions taken during a specified time period, described below.

HurricaneRelief AreaDistribution taken afterDistribution taken before
HarveyTexas8/23/20171/1/2019
IrmaFlorida, Georgia, U.S. Virgin Islands, and Puerto Rico9/4/20171/1/2019
MariaU.S. Virgin Islands, Puerto Rico, and Seminole Tribe of Florida9/16/20171/1/2019

Your plan is not required to allow qualified hurricane distributions. If you decide that your plan will allow qualified hurricane distributions, however, you should consult with your plan document provider to determine what action you must take. If you need to amend your plan document to allow qualified hurricane distributions, you must amend by the last day of the 2019 plan year.

 

Qualified Hurricane Distribution Relief Granted to Individuals

Designating a withdrawal request as a qualified hurricane distribution allows the individual to

  • withdraw amounts up to $100,000, aggregated across all IRAs and employer plans;
  • avoid mandatory 20 percent withholding on distributions from qualified plans, 403(b) plans, and governmental 457(b) plans;
  • pay taxes on the distribution ratably (equally) over three years, beginning in the tax year of the distribution, or elect to pay all taxes in current year;
  • avoid the 10 percent early distribution penalty tax;
  • repay the qualified hurricane distribution (as a rollover) into any eligible retirement vehicle within a three-year window starting on the day after the distribution is received; and
  • repay hardship distributions for the purchase or construction of a principal residence taken after August 23, 2017, if the purchase was cancelled due to hurricane events. Repayment must be completed by February 28, 2018, and can be made to any eligible retirement plan.

 

Hardship Distribution Relief

If you decide not to permit qualified hurricane distributions in your plan, you may still allow for other relief. Broader relief applies to individuals who live in, or have a business within, a presidentially declared disaster area. For instance, participants can now use disaster relief as a safe harbor hardship reason.

  • Even if your plan does not currently offer hardship distributions, you can permit hardship distributions for disaster relief immediately—if you amend your plan by the end of the 2018 plan year to allow for these distributions.
  • You do not need supporting documentation (e.g., spousal consent) before approving a hardship distribution, as long as you reasonably believe that you can obtain it. Then you must collect it as soon as practicable.
  • No six-month suspension of deferral contributions applies to disaster relief hardships.

 

Loan Relief Provided

For your plan participants who live in, or have a business within, one of the declared disaster areas, certain features of permissible loan programs have been relaxed.

  • Even if your plan does not currently offer loans, you can permit loans to provide disaster relief immediately and then amend your plan to allow for loans by the end of your 2018 plan year.
  • As with hardships, you can process loans without obtaining all of the supporting documentation first. But you must collect this information as soon as practicable.
  • The maximum loan amount for disaster-relief loans is raised to $100,000 (from $50,000), and participants can take loans in excess of 50 percent of their vested balance.
  • The borrower can delay loan repayments for one year, and does not need to include this period in the payment schedule. For example, a five-year loan repayment schedule could begin after the initial one-year delay.

 

Tax Deadline Extensions Granted

If you or your plan participants live in (or have a business within) one of the disaster areas, they may be eligible for extensions on deadlines that fall on or after the dates listed below. Click through the relief area name to see the full list of affected counties from www.fema.gov/disasters.

Hurricane  Relief Area Tax deadline
on or after
Deadline is
extended to
Harvey Texas   8/23/2017   1/31/2018
Irma Florida and Seminole Tribe of Florida   9/4/2017   1/31/2018
Irma U.S. Virgin Islands and Puerto Rico   9/5/2017   1/31/2018
Irma Georgia   9/7/2017   1/31/2018
Maria U.S. Virgin Islands   9/16/2017   1/31/2018
Maria Puerto Rico   9/17/2017   1/31/2018

Employer-Sponsored Retirement Plan Deadlines Extended

  • Employer contributions
  • Employer tax deduction
  • Employee contribution deposit timing (deferrals and loan payments), but must be deposited as soon as practicable
  • Form 5500 filing (IRS and DOL)
  • Loan repayments
  • Required beginning date and required minimum distributions
  • Removal of excess deferrals
  • Removal of ADP excess (no employer penalty applies)
  • Removal of ACP excess (no employer penalty applies)
  • Beneficiary disclaimer timing
  • End of 60-day rollover window
  • Blackout notices not given timely
  • Beneficiary disclaimer timing
  • IRS Employee Plan Compliance Resolution System two-year period for self-correcting significant failures

 

Additional PBGC Deadlines Extended for Defined Benefit Plans

  • Payment of PBGC insurance premiums
  • Filing termination notices
  • Completing the distribution of plan assets
  • Filing Form 501, Form 601, and reportable events notices
  • Filing of actuarial information for plans with funding waivers, missed contributions, or underfunding


IRA, HSA, and ESA Deadlines Extended

  • Regular contributions
  • Tax deduction
  • Recharacterizations
  • Forms 1099 and 5498 delivery
  • Required beginning date and required minimum distributions
  • 60-day rollover
  • SIMPLE IRA deposit timing, but must be deposited as soon as practicable
  • Timely removal of excess (with NIA)
  • Beneficiary disclaimer timing

 

Next Steps

The hurricane relief outlined above should help you and your affected participants in the wake of these recent disasters. But it is up to you whether you take full advantage of the available relief. Plans are not required to operate under the more generous hurricane provisions. But if your plan does, you should thoroughly document any changes to your plan in accordance with the existing rules and the requirements laid out in the relief itself.

Check back at Ascensus.com for updates on this and all retirement-related topics.

                                                   What is the right distribution type to use?

 

 Qualified
Hurricane
Distribution
Hardship
Distribution –
hurricane
reasons
Hardship
Distributions –
normal reasons
Distribution allowed if you live within
the disaster area and if you suffered an economic loss
            X          X  
Distribution allowed if your relative or lineal descendant lives within the
disaster area
           X  
Distribution allowed if your business
was within the disaster area
           X  
The limit on how much you can take for this distribution reason      $100,000 amounts eligible
for hardship
amounts eligible
for hardship
Distribution permitted without a regular (e.g., age 59½, hardship, normal retirement age) distribution trigger             X    
Distribution is considered eligible for rollover             X    
Distribution can be paid back into the plan or another plan             X Only if used to purchase a residence in the disaster area from 2/28/2017
to 9/21/2017
Only if used to purchase a residence in the disaster area from 2/28/2017
to 9/21/2017
Six-month deferral suspension applies                     X
Taxation on the distribution can be spread over three years instead of just in year of distribution             X    
Distribution subject to 10 percent early distribution penalty tax             X                X
Deadline for taking hurricane-related distributions        1/1/2019          1/31/2018              N/A