The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Relief Act) signed into law on September 29, 2017, enables qualified retirement and 403(b) plan sponsors to offer certain plan participants affected by Hurricanes Harvey, Irma and Maria distributions and loans that are eligible for more generous limits and conditions than are otherwise applicable.1 The Internal Revenue Service (IRS), the Department of Labor (DOL), the Department of Health and Human Services (HHS) and the Pension Benefit Guaranty Corporation (PBGC) have issued guidance that will help plan sponsors respond quickly to the unique needs of the plans and of the participants and beneficiaries resulting from the damage inflicted by Hurricane Harvey.2 Similar guidance has been issued to assist victims of Hurricane Irma.3 We expect that additional relief will also be available to victims of Hurricane Maria, although some of the guidance has not yet been formally updated by the agencies.4 This Update summarizes the new law and guidance from those federal agencies.5
Under the Disaster Relief Act, plan sponsors may provide participants who live in a declared Hurricane Harvey, Irma or Maria disaster area, and who have losses because of the applicable Hurricane, more generous terms if they elect to take distributions or loans, including exemption from the 10 percent early withdrawal penalty tax, higher loan amounts and special rollover and repayment provisions. Additional requirements apply including designated time periods within which actions must be taken in order for the relief to apply. Guidance related to the Disaster Relief Act is expected to be released going forward. Plan sponsors should check the IRS webpage “Tax Relief in Disaster Situations” periodically to see if there is additional information on these relief measures. These provisions may be adopted without the need for immediate amendments.
Announcement 2017-11 liberalizes the 401(k) hardship distribution rules and streamlines loan procedures so that plans can provide participants with faster access to funds to help Hurricane Harvey victims. Announcement 2017-13 provides identical relief for Hurricane Irma victims. It appears likely that the IRS will issue a formal announcement providing identical relief for Hurricane Maria victims.6 These special rules apply to hardship distributions and loans that are made during the time periods and to the participants described in the table below.
|Disaster||Eligibility Criteria for Participants**||Beginning of the FEMA Incident Period||Hardship Distribution or Loan Period**|
|Hurricane Harvey||As of the beginning of the Federal Emergency Management Agency (FEMA) incident period, at least one of the following was located in one of the counties (or Tribal Nations) identified as covered disaster areas:*
||August 23, 2017 (for identified Texas counties)||August 23, 2017 to January 31, 2018|
|Hurricane Irma||September 4, 2017 (for identified Florida counties)||September 4, 2017 to January 31, 2018|
|Hurricane Maria||September 16, 2017 (for the U.S. Virgin Islands) September 17, 2017 (for Puerto Rico)||September 16, 2017 to a Not-Yet-Announced Date for the U.S. Virgin Islands September 17, 2017 to a Not-Yet-Announced Date for Puerto Rico|
* Information about covered disaster areas can be found on the FEMA website.
** Eligibility criteria, applicable dates and conditions for certain other types of relief are described under the Disaster Relief Act, above.
Under this guidance, eligible plans, generally 401(k) plans and 403(b) plans,7 are permitted to:
Announcements 2017-11 and 2017-13 do not change the maximum amount available for a hardship distribution under the plan under the IRC or related regulations or the statutory limits for loans, nor do they change the tax consequences of a hardship distribution or loan.9
The DOL has published a helpful guide, “FAQs for Participants and Beneficiaries Following Hurricane Harvey,” which it has indicated also applies to Hurricane Irma.10 The guide addresses common questions participants may have with respect to both health and retirement benefits, such as what to do if a pension check is delayed or records are destroyed as a result of the storms.
The DOL has also issued compliance guidance for plans, plan sponsors and service providers (covered entities) located in a county identified for individual assistance by FEMA due to the effects of Hurricane Harvey or Hurricane Irma.11 The guidance confirms that the DOL will not treat any covered entity as having violated Title I of the Employee Retirement Income Security Act (ERISA) solely because the entity complied with the IRS Announcement with respect to verification procedures for hardship distributions, loans or other pension benefit distributions. In addition, the DOL guidance indicates that:
The IRS announced relief for leave-donation programs, which allow employers to make cash donations to charitable organizations on behalf of employees who elect to give up certain paid vacation, sick or personal leave. According to Notice 2017-48 (Harvey), Notice 2017-52 (Irma) and Notice 2017-62 (Maria), the leave donations will not constitute gross income or wages for the employees if employers send the money to charitable organizations described under §170(c), and payment is made before January 1, 2019.
Electing employees may not claim a charitable contribution deduction with respect to the value of their forgone paid leave.
HHS has issued several bulletins concerning the severe disasters and public health emergencies created by the Hurricanes Harvey and Irma. HHS has waived certain sanctions and penalties under the Health Insurance Portability and Accountability Act (HIPAA) related to the HIPAA privacy rule, such as the requirements to obtain a patient’s agreement to speak with family members involved in the patient’s care. HHS has also restated how HIPAA privacy rules should be applied in emergency situations.12
The IRS has provided additional guidance that postpones certain tax filings and payment deadlines until January 31, 2018, for plans, plan sponsors and plan service providers affected by Hurricanes Harvey, Irma and Maria.13 The guidance also provides relief with respect to related interest, late payment and late filing penalties for affected entities. Moreover, various deadlines for the employee benefit related acts listed in IRS Revenue Procedure 2007-56, Section 8 are postponed until January 31, 2018, for affected plans.
The IRS, the DOL and the PBGC issued Notice 2017-49, which extends certain funding-related deadlines for affected plans if the principal place of business of the employer maintaining the plan or the employers employing more than 50 percent of the plan’s active participants, or if the worksite and location of the plan’s records, administrator, primary record keeper, or enrolled actuary or other advisor making funding determinations, are located in counties identified by FEMA for assistance.
Generally, deadlines for taking funding-related actions that fall between the beginning of the FEMA incident period and January 31, 2018, are postponed to January 31, 2018, including the following:
The relief provided under the Notice also applies for purposes of Title IV of ERISA in determining timeliness of contributions and whether they are included in market value of assets.
The PBGC also has provided relief to plans and plan sponsors in affected areas with respect to certain filing deadlines and penalties.14 The guidance is issued separately for each state in which certain areas have been designated as disaster areas, with those areas specified, and covers deadlines related to premium filings and other notices and filings. For single-employer plans, PBGC premiums that would otherwise be due to be paid on October 16, 2017 are now due on January 31, 2018, although interest will be added to the delayed payment of approximately 1 percent per quarter.
Plan sponsors might wish to check the agency webpages devoted to disaster relief15 on a regular basis because the agencies have indicated that they will expand existing relief provisions and will add additional relief as necessary. Relief for victims of Hurricane Maria is likely to be formalized as soon as the agencies can do so. Also, the agencies have invited those affected by Hurricanes Harvey, Irma or Maria but not covered by any of the existing guidance to contact them directly to discuss individual relief on a case-by-case basis.
Sibson works with plan sponsors and their attorneys on compliance issues.
Sibson consultants can work with employers to determine if affected plans or plan participants would benefit from any of the agency-provided relief.
Sibson compliance consultants can assist in preparing documents necessary to implement relief programs such as leave-based donation programs, in drafting amendments to adopt relief provisions when necessary, and in preparing supporting documentation, such as application forms or certifications in order to support the administration of such programs.
To discuss this guidance, contact your Sibson consultant or the Sibson office nearest you.
1 When the Disaster Tax Relief Act (Public Law No: 115-63) is available online, it will be accessible from the Public and Private Laws page of the Government Printing Office website. Until then, refer to the House Bill (H,R. 3823) on Congress’s website.
2 The guidance is available on the Help for Victims of Hurricane Harvey page on the IRS website.
3 The guidance is available on the Help for Victims of Hurricanes Irma and Maria page on the IRS website.
4 A Recap of Key Tax Relief Provisions Available Following Harvey, Irma and Maria is available on the IRS website. At the time this Update was written, the agencies had started to issue guidance to address the evolving situation concerning the California wildfires. See guidance on the Tax Relief for Victims of Wildfires in California page on the IRS website and Disaster Relief Relating to PBGC Deadlines in Response to Wildfires in California.
5 In addition, for those affected by the hurricanes, the Centers for Medicare & Medicaid Services has announced special enrollment periods for 2018 Medicare coverage and coverage under the Affordable Care Act state Exchanges/federal Marketplace. We will cover that news in a subsequent Update.
6 See IR 2017-160, issued September 26, 2017
7 Defined benefit and money purchase plans may not make hardship distributions pursuant to Announcements 2017-11 and 2017-13 except from separate accounts, if any, containing rollovers or employee contributions.
8 Although guidance specific to Hurricane Maria has not yet been issued, IR 2017-160, which is subtitled “A Recap of Key Tax Relief Provisions Available Following Harvey, Irma and Maria,” issued September 26, 2017, appears to indicate that hardship distributions for any reason arising from Hurricane Maria also are permitted.
9 The Disaster Relief Act increased the maximum loan amount from $50,000 to $100,000. See the Disaster Relief Act regarding eligibility criteria, applicable dates and conditions for tax relief.
10 See DOL Release 17-1297-NAT, dated 9/15/2017.
11 See DOL Release 17-1216-NAT, dated 8/30/2017, extended to Hurricane Irma in DOL Release 17-1297-NAT, referenced in footnote 10. See DOL Release 17-1255-NAT, which states that the Employee Benefits Security Administration is working to extend relief to victims of Hurricane Maria.
14 See the Disaster Relief Announcements page on the PBGC website.
Update is Sibson Consulting’s electronic newsletter summarizing compliance news. Update is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.
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