Previously I wrote about restrictions on hardship distributions for recovery from Hurricane Sandy. The administration apparently had similar concerns and the Internal Revenue Service has announced that 401(k)s and similar employer-sponsored retirement plans are getting special relief to permit loans and hardship distributions to victims of Hurricane Sandy and members of their families.
To qualify for this relief, hardship withdrawals must be made by Feb. 1, 2013. Under the special relief, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply and the normal restrictions associated with hardship distributions (such as demonstrating no other sources of relief are available) will not apply. Distributions are limited to those in the geographical area defined by the IRS in Notice 2012-44. The relief further provides that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
Although plans are be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features, the plan would still need to eventually be amended to account for the special relief given. In addition, the plan can ignore the limits that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the announcement.
So if your plan does not allow for hardship distributions, or if it does with limitations, this relief period provides plan sponsors with a way to permit participants to withdraw funds to aid in recovery from the hurricane. For guidance on plan amendments, please contact your attorney at Fox Rothschild.