Member Article

IRS Announcement 2017-15 provides relief to employees who have been adversely affected by the recent wildfires in Northern California by allowing them to take loans or distributions from retirement plans to alleviate hardships caused by the wildfires. The Announcement also provides relief from verification procedures required under retirement plans with respect to loans and hardship distributions.

Plans Covered by the Announcement

Qualified employer retirement plans covered by Announcement 2017-15 include 401(k) plans, 403(b) plans and 457(b) plans and, in limited circumstances, traditional pension plans. 

A qualified employer retirement plan that does not currently permit loans or hardship distributions but wishes to make loan or hardship distributions pursuant to Announcement 2017-15 must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2017. For calendar year plans, the amendment deadline is December 31, 2018. 

Relief Provided

Under Announcement 2017-15, participants in a qualified employer retirement plan may take a loan or a hardship distribution for a need arising from the wildfires using a streamlined approach. The employee or former employee must have his or her principal place of residence or place of employment, or the employee's lineal ascendant’s (parents or grandparents) or descendant’s (children or grandchildren), dependent’s, or spouse’s principal residence or place of employment, on October 8, 2017, must be located in one of the following counties: Butte, Lake, Mendocino, Napa, Nevada, Orange, Sonoma, and Yuba. Any additional areas identified by FEMA for individual assistance due to damage from the wildfires will be entitled to the relief provided by Announcement 2017-15 from the date specified by FEMA.

Loans and hardship distributions under this streamlined approach must be made on or after October 8, 2017, and no later than March 15, 2018.

Hardship Distributions:

For hardship distributions, the Announcement allows plan administrators to disregard verification procedures and rely solely on representations from the employee or former employee as to the need for and amount of a hardship distribution, unless the plan administrator has actual knowledge to the contrary.  The amount available for a hardship distribution is limited to the maximum amount that would be permitted for a hardship distribution under the terms of the Plan. However, the relief provided under the Announcement is available for any hardship of the employee, not just those enumerated in the regulations, and no post-distribution restrictions apply. The distribution is treated as a hardship distribution for all purposes under the Code and regulations.    

Loans:

While normal spousal consent rules still apply, the Announcement permits a qualified employer retirement plan to disregard procedural requirements imposed by the plan's terms for any period beginning on or after October 8, 2017 through March 15, 2018, for loans or distributions made to eligible individuals provided: (1) the plan administrator makes a good faith effort under the circumstances to comply with the procedural requirements, and (2) as soon as practicable, makes a reasonable attempt to obtain any missing documentation. Plan loans made pursuant to the Announcement must comply with Code § 72(p). 

Taxation

Hardship distributions are includible in the employee's gross income and generally subject to the 10% early distribution tax.  Loans are not includible in the employee's gross income, but are subject to repayment.

For more information or if you have any questions, please call or email your regular Hanson Bridgett contact or any of the attorneys in the Hanson Bridgett Employee Benefits Group.