disaster relief

House Votes on CA Disaster Bill, With Revised 2017 Hurricane Relief

The House of Representatives has passed H.R. 4667, which is legislation designed primarily to amend the Robert T. Stafford Disaster Relief and Emergency Assistance Act and appropriate funds. It also contains disaster-related relief that primarily applies to 2017 presidentially declared wildfire-related disasters in California, but that also amends the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (detailed in an Ascensus® Washington Pulse). Thus, if enacted, the legislation would impact previous relief provided to those affected by Hurricanes Harvey, Irma, and Maria.

The bill has yet to be considered by the Senate, which has adjoined for the year. Check our newsroom at ascensus.com for the latest updates.

California Wildfires

Proposed retirement-related relief granted to those affected by California wildfires is as follows.

  • Affected individuals would be allowed to take qualified wildfire distributions of up to $100,000 (distributions taken on or after October 8, 2017, and before January 1, 2019).
  • The 10 percent early distribution penalty tax would not apply to qualified wildfire distributions.
  • Qualified wildfire distributions could be repaid over a three-year period.
  • Inclusion in income of qualified wildfire distributions could be done ratably over a three-year period.
  • Qualified wildfire distributions would not be subject to mandatory 20 percent withholding.
  • Hardship distributions for purchase of a principal residence received after March 31, 2017, and before January 15, 2018, could be recontributed to the plan.
  • Loan amounts of up to $100,000 could be taken, with a one year delay allowed for repayments (this delay is in addition to the original five-year maximum loan term allowed).

Revisions to Hurricane Relief

The bill would amend the Disaster Tax Relief and Airport and Airway Extension Act of 2017 by changing the timing requirements for Hurricanes Harvey and Irma presidentially declared disasters from September 21, 2017, to October, 17, 2017.


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.

Hurricane Relief Area  Distribution
 taken after
 Distribution
 taken before
Harvey Texas    8/23/2017   1/1/2019
Irma Florida, Georgia, U.S. Virgin Islands, and Puerto Rico    9/4/2017   1/1/2019
Maria U.S. Virgin Islands, Puerto Rico, and Seminole Tribe of Florida   9/16/2017   1/1/2019

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

 


Washington Pulse: Hurricane Legislation Grants Retirement Plan Relief

Similar to its hurricane disaster response more than a decade ago, Congress has acted to give relief to victims of Hurricanes Harvey, Irma, and Maria. Initial responses by the Internal Revenue Service (IRS), Department of Labor (DOL), and Pension Benefit Guaranty Corporation (PBGC), extended many tax-related deadlines for hurricane victims. These actions are now followed by enactment of the Disaster Tax Relief and Airport and Airway Extension Act of 2017.

 

How Legislation Affects IRAs and Employer Plans

Under the provisions of the new law, “qualified hurricane distributions” from IRAs, qualified retirement plans, 403(b) plans, and governmental 457(b) plans are entitled to special tax treatment, as well as repayment options if the recipient so chooses. There are also provisions that apply specifically to loans from employer plans.

Employer plans are not required to offer qualified hurricane distributions or the relaxed loan parameters, but can elect to offer them.

 

Qualified Hurricane Distributions

Individuals with a principal residence within a presidentially-declared disaster area affected by Hurricanes Harvey, Irma, or Maria may request qualified hurricane distributions from their IRAs or from their employer plans (plan permitting). Qualified hurricane distributions are those distributions taken during a specified time period, described below.

Hurricane Relief Area Distribution taken after Distribution taken before
Harvey Texas 8/23/2017 1/1/19
Irma Florida, Georgia, U.S. Virgin Islands, Puerto Rico, and Seminole Tribe of Florida 9/4/2017 1/1/19
Maria U.S. Virgin Islands and  Puerto Rico 9/16/2017 1/1/19 


Qualified Hurricane Distribution Relief Granted to Individuals

Designating a withdrawal request as a qualified hurricane distribution allows an 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 distribution, or elect to pay all taxes in the current year;
  • avoid the 10 percent early distribution penalty;
  • roll over the qualified hurricane distribution into any eligible IRA or employer plan, within a 3-year window, starting on the day after the distribution is received; and
  • repay hardship distributions for purchase or construction of a principal residence taken after August 23, 2017, if the purchase or building was cancelled because of hurricane events. Repayment must be completed by February 28, 2018, and can be made to any eligible IRA or employer plan.

Loan Relief

The new law also allows employer plans to relax the loan limitation for participants with a principal residence in the hurricane areas. If permitted, affected participants can request a loan from their 401(k) plan or other employer plan up to a maximum request of $100,000 instead of the standard $50,000 and the 50 percent-of-vested-account-balance limitation will not apply.

Plan loan payments for qualified individuals may be delayed up to one year, and the maximum five-year loan amortization period for nonmortgaged loans is similarly extended by one year.

What is Required

Plan sponsors must determine if they will permit qualified hurricane distributions and if they will allow the expanded loan provisions. They may need to prepare a document amendment. If an amendment is required, plans may retroactively amend for these features by the last day of the 2019 plan year. Plan sponsors must inform participants of their options under the hurricane relief provisions.

IRA and employer plan service providers should evaluate forms, systems, and workflow processes to support qualified hurricane distributions, loan exceptions, and potential repayment and rollovers. For example, the legislation states that the notice given to recipients of eligible rollover distributions need not be provided with a hurricane-related distribution but other distribution consent and notice requirements still apply.

Additional Guidance

Following enactment of the Katrina Emergency Tax Relief of 2005, subsequent IRS guidance provided details for interpreting that legislation. In the coming days or weeks, we expect similar agency guidance to further interpret the new law. Ascensus will monitor and provide additional details on Ascensus.com as new information is released.

 


DOL Announces Defined Benefit Plan Relief for Hurricane Maria

The Department of Labor’s Pension Benefits Guaranty Corporation (PBGC)—the DOL division with primary oversight of defined benefit pension plans—has issued disaster relief Announcements 17-14 and 17-15. They describe special relief that the agency is granting to plans and to designated persons (those responsible for meeting a PBGC deadline) following Hurricane Maria’s devastation in the U.S. Virgin Islands and Puerto Rico.

The PBGC announcements cite IRS news releases PR-2017-02 and VI-2017-02 as setting the timing parameters for deadline extensions. For those who reside or have a business on the islands of St. Croix, St. John, and St. Thomas, certain plan events with a normal deadline on or after September 16, 2017, and on or before January 31, 2018, may be completed by January 31, 2018.

For those who reside or have a business within any of the 78 municipalities in Puerto Rico, certain plan events with a normal deadline on or after September 17, 2017, and on or before January 31, 2018, may be completed by January 31, 2018.

The deadline relief applies to the following actions.

  • Payment of PBGC insurance premiums (single and multi-employer plans)
  • Filing termination notices (single-employer plans)
  • Completing the distribution of plan assets (single-employer plans)
  • Filing post-distribution certification, Form 501 (single-employer plans)
  • Filing for distress termination, Form 601
  • Filing a reportable event notice
  • Filing Form 5500, Annual Return/Report of Employee Benefit Plan
  • Certain plans with underfunding, missed contribution, or funding waivers that must file special actuarial information within 15 days following the filing of their Form 5500, will have until January 31, 2018 for such filing.

Hurricane Relief Legislation Will Not Be Fast Tracked Through House

A move to fast track through the House of Representatives the Disaster Tax Relief and Airport and Airway Extension Act of 2017 failed. Instead, the legislation, which would grant special access to retirement savings arrangements to victims of Hurricanes Harvey, Irma, and Maria, will have to follow the regular order of procedures to secure passage in the House.

A two-thirds majority of House members—known as “unanimous consent”—is required to sidestep the normal process of a bill being subject to committee hearings, debate, and possible amendment before a final vote. Some who opposed advancing the bill to a vote by the expedited unanimous consent process argued that the legislation should follow the normal legislative procedures. The legislation could be revived later this week under the regular order process (requiring only a simple majority to pass). At this time, no comparable legislation is currently under consideration in the Senate. Watch this Ascensus News for further developments.


Hurricane Relief Legislation Would Grant Special Access to Retirement Accounts

U.S. House Ways and Means Committee Chairman Kevin Brady (R-TX) has announced the introduction of legislation that would grant special access to retirement savings arrangements to victims of Hurricanes Harvey, Irma, and Maria. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 would include the following provisions.

  • Treat retirement plans that allow special qualified hurricane distributions (a qualified hurricane distribution not to exceed $100,000) as meeting plan distribution qualification requirements
  • Provide for taxation of qualified hurricane distributions over a three-year period
  • Provide an exception to the 10 percent early distribution penalty tax for IRA and employer-sponsored retirement plan qualified hurricane distributions
  • Exempt qualified hurricane distributions from mandatory 20 percent withholding normally applied to eligible rollover distributions from employer plans
  • Allow repayment of qualified hurricane distributions within a three-year period following distribution
  • Allow distributions taken for home purchases that were cancelled as a result of the hurricane events to be repaid to retirement savings arrangements
  • Increase the maximum plan loan amount from $50,000 to $100,000, and remove the 50 percent vested account balance limitation
  • Grant a one-year delay for plan loan repayments and disregard this one-year period for purposes of loan amortization
  • Allow amending a retirement plan that enables these qualified hurricane provisions by the end of the 2019 plan year, or a later date if so prescribed by the Secretary of the Treasury.

This legislation has not yet been brought to the House floor for consideration and voting, and at this time, no companion bill has been announced in the Senate. Watch this Ascensus News for further developments.

 


DOL Expands Defined Benefit Plan Relief to Counties in Puerto Rico

The Department of Labor’s Pension Benefits Guaranty Corporation (PBGC)—the DOL division with primary oversight over defined benefit pension plans—has issued Disaster Relief Announcement 17-12, which describes special deadline relief granted to plans and designated persons (those responsible for meeting a PBGC deadline) following Hurricane Irma events in Puerto Rico. The relief applies specifically to the municipalities of Culebra and Vieques, but the relief may apply beyond these areas on a case-by-case basis if requested. Note that the DOL could further expand the identified disaster to other areas as well.

This follows similar relief in Announcement 17-11 for various counties in Florida, and Announcement 17-10 for the islands of St. John and St. Thomas in the U.S. Virgin Islands. See the PBGC disaster page for this and other disaster-related response from the PBGC.

Announcement 17-12 explains that for Puerto Rico, certain events whose normal deadline is on or after September 5, 2017, and on or before January 31, 2018, may be completed through January 31, 2018.

The deadline relief applies to the following actions.

  • Payment of PBGC insurance premiums (single and multi-employer plans)
  • Filing termination notices (single-employer plans)
  • Completing the distribution of plan assets (single-employer plans)
  • Filing post-distribution certification, Form 501 (single-employer plans)
  • Filing for distress termination, Form 601
  • Filing a “reportable event” notice
  • Filing Form 5500, Annual Return/Report of Employee Benefit Plan
  • Certain plans with underfunding, missed contribution, or funding waivers that must file special actuarial information within 15 days following the filing of their Form 5500, will have until January 31, 2018, for such filing.

DOL Expands Defined Benefit Plan Relief to Counties in Florida

The steady stream of special relief granted to retirement plans and taxpayers in the wake of Hurricanes Harvey and Irma continues. The Department of Labor’s Pension Benefits Guaranty Corporation (PBGC)—the DOL division with primary oversight over defined benefit pension plans—has issued Disaster Relief Announcement 17-11, which expands special relief granted to plans and designated persons (those responsible for meeting a PBGC deadline) following Hurricane Irma events.

Announcement 17-10, issued on September 11, identified relief for the islands of St. John and St. Thomas in the U.S. Virgin Islands. Announcement 17-11 now expands this relief to include the Florida counties of Broward, Charlotte, Clay, Collier, DuVal, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota, and St. Johns. Note that the DOL could further expand the identified disaster to other areas as well.

These announcements explain that certain events whose normal deadline is on or after September 4, 2017, and on or before January 31, 2018, may be completed through January 31, 2018.

The deadline relief applies to the following actions.

  • Payment of PBGC insurance premiums (single and multi-employer plans)
  • Filing termination notices (single-employer plans)
  • Completing the distribution of plan assets (single-employer plans)
  • Filing post-distribution certification, Form 501 (single-employer plans)
  • Filing for distress termination, Form 601
  • Filing a reportable event notice
  • Filing Form 5500, Annual Return/Report of Employee Benefit Plan
  • Certain plans with underfunding, missed contribution, or funding waivers that must file special actuarial information within 15 days following the filing of their Form 5500, will have until January 31, 2018, for such filing.

 


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).

 


Tax Deadline Relief for Three Areas Affected by Hurricane Irma

The IRS issued news release IR-2017-150 describing tax-related deadline relief for victims of Hurricane Irma in Florida, Puerto Rico, and two of the U.S. Virgin Islands. The relief includes certain retirement-related deadlines as well.

 

IRA and Retirement Plan Transactions

In addition to tax return deadlines falling within the specified dates, the relief includes an extension of time to complete certain time-sensitive tax-related acts defined under Treasury Regulation 301.7508A-1(c)(1). This includes completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts.

 

Effective Dates and Locations

Deadlines that fall on or after the following IRS-identified storm event dates and on or before January 31, 2018, are extended to January 31, 2018. The start dates are as follows, by location.

  • September 4: Florida (counties of Broward, Charlotte, Clay, Collier, DuVal, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota, and St. Johns)
  • September 5: Puerto Rico (municipalities of Culebra and Vieques)
  • September 5: U.S. Virgin Islands (Islands of St. John and St. Thomas)

 

Locations Subject to Change

The IRS issues disaster-related tax relief news releases at its disaster web page that identify the deadline extension period and specific areas included in the relief. The applicable areas are subject to revision, and additional counties, municipalities, etc., could be added. See the IRS website for the most current news releases and their details.

 

Individuals Eligible for Relief

The relief applies specifically to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who was injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 866-562-5227 to request relief.