Relief comes for retirement plans after Hurricane Maria and wildfires
TAX ALERT |
In Announcement 2017-15, the IRS provided nearly identical relief for retirement plan distributions to taxpayers affected by Hurricane Maria and recent wildfires in California (“California Wildfires”) as it has commonly provided in past disaster situations. The guidance provides that employers can streamline some of the red tape that would typically apply to hardship distributions and plan loans.
Loans or hardship distributions to employees, or former employees, who live or work, or whose family live or work, in a FEMA designated area, can be made so long as the plan administrator does not have knowledge that contradicts an individual’s representation for the need of the amount related to the hurricane. The current designated area began in the U.S. Virgin Islands on Sept. 16, 2017; in Puerto Rico on Sept. 17, 2017; and in California on Oct. 8, 2017, (“Incident Date”), but it is important to check the list before taking action. Retirement plans making loans or distributions under the relief provided in this announcement will not be subject to certain restrictions that would normally apply to such transactions, such as restrictions on contributions after receiving a hardship distribution.
It should be noted that the relief does not change the tax consequences of any loan or hardship distribution being made under the relief. Hardship distributions will still be taxable as an in-service distribution and potentially subject to early distribution penalties. The relief simply temporarily removes certain administrative burdens of the plan so that funds can be released more quickly than normal procedures would typically allow. In addition, plans which do not currently have provisions for loans or hardship distributions can make them before the employer formally amends its plan to include such provisions.
This guidance can be followed for distributions made by March 15, 2018. While the relief is intended to expedite the process so that affected individuals can access funds needed for assistance, it still requires the employers to follow up the distributions with certain actions. For example, if the plan does not currently allow for hardship distributions, the plan must be amended no later than the first plan year, beginning after Dec. 31, 2017. In addition, the relief does not remove all requirements for documentation but allows the distributions to go out before the documentation is received. Therefore, employers should welcome the relief for the opportunity to help affected employees but should pay careful attention to the procedures provided in the relief to avoid disqualifying their plans.
Plan sponsors should also note that the IRS extended the due date for certain returns to be filed after the Incident Date, pursuant to News Releases IR-2017-172, CA-2017-06, VI-2017-02 and PR-2017-02 for designated areas. This relief extends the deadline for returns due after this date to Jan. 31, 2018 for affected taxpayers and includes the Form 5500 series. In addition, late deposit penalties for payroll and excise taxes will be waived during the disaster period in which deposits are normally due. Details for the time periods that apply to each jurisdiction can be found on the disaster relief page. This relief can only be relied upon for items that would otherwise have been timely filed on or after the Incident Date and for taxpayers in the federally declared disaster area. Other late filings will not be protected.
In coordination with other federal agencies that regulate employee benefit plans, the U.S. Department of Labor issued a news release relating to Hurricane Maria indicating that the Employee Benefits Security Administration will be temporarily waiving certain requirements and deadlines related to retirement plans and group health plans affected by Hurricane Maria and the California Wildfires, as it did in response to Hurricane Irma.
As a final item, the Pension Benefit Guaranty Corporation (PBGC) issued Disaster Relief Numbers 17-14, 17-15, and 17-17 in which it indicated that it will extend deadlines and waive penalties for employers affected by Hurricane Maria and the California wildfires. The function of the PBGC is to insure the retirement incomes of workers covered by private-sector defined benefit pension plans. It does this by collecting insurance premiums from employers that sponsor these plans. In its notices, it recognized that in many disaster areas, affected employers will have difficulty meeting certain filing and premium payment timing obligations.