Consulting Services, Tax Services • Published 10/23/2017 Disaster Tax Relief for Employee Benefit Plans and Participants

On September 29, 2017, President Trump signed legislation which provides relief for employee benefit plan participants who were victims of Hurricanes Harvey, Irma, and Maria. The legislation is in addition to the relief provided by the Internal Revenue Service (IRS), the Department of Labor (DOL), and the Pension Benefit Guarantee Corporation (PBGC). The law is nearly identical to the legislation passed after Hurricane Katrina.

Eligible Retirement Plans

The relief is available to sponsors of qualified plans, ERISA and non-ERISA 403(b) plans, and governmental section 457(b) plans whose participants were directly affected by Hurricane Harvey, Irma, and Maria.

Designated Disaster Date

The earliest date upon which an impacted participant and/or impacted family can take advantage of the disaster relief. The dates are as follows:

• August 23, 2017, for Hurricane Harvey
• September 4, 2017, for Hurricane Irma
• September 16, 2017, for Hurricane Maria

Qualified Hurricane Distribution

An Eligible Retirement Plan may make a participant distribution between the Designated Disaster Date and January 1, 2019, that is not in excess of $100,000, reduced by all other eligible hurricane distributions in prior years. The distribution also qualifies for the following additional relief:

1. The early distribution excise tax of 10% will not be assessed on distributions to any participants who have not reached age 59.5.
2. At any time during the three-year period after the distribution is received, the participant may make contributions totaling the amount of the distribution to any Eligible Retirement Plan or IRA. Any repayments will be treated as an after-tax contribution.
3. For federal income tax purposes, the distribution should be included radically over the three-year tax period, beginning with the year in which the distribution is received. Alternatively, the participant may elect to include the entire distribution in income, in the year received.

Hardship Distributions

An Eligible Retirement Plan may make a distribution to an impacted participant or a participant with impacted family for any need between the Designated Disaster Date and January 31, 2018. The need does not have to be limited to those listed in the regulations and it may include expenses for food, shelter, repair, or a replacement home.

Plan Loans

Plan loans may be made during the period beginning on September 28, 2017 and ending December 31, 2018, of up to $100,000 or 100% of the participant’s vested account rather than $50,000 or 50% of the participant’s vested account.

Any plan loan repayments due between the Designated Disaster Date and December 31, 2018, is delayed for one year. The remaining payments should be adjusted to reflect any interest accruing during the delay. The delay is disregarded in determining the term of the loan.

Plan Amendments

A plan that does not currently permit hardship distributions or loans must be amended by the end of the plan year beginning after December 31, 2017. For other Disaster Relief the amendment must be adopted on or before the last day of the plan year beginning on or after January 1, 2019 (for governmental plans, January 1, 2021).

This information is provided for general educational and information purposes only. The above is a general summary of the recent legislation passed and it should not be used without consultation with a professional advisor. Specific advice as to your situation should be sought before taking action on information discussed in this publication.  

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