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Hurricane Sandy Relief for Retirement Plan Loans and Hardship Distributions

The IRS has issued guidance temporarily relaxing certain requirements related to loans and hardship distributions from 401(k), 403(b), and governmental 457(b) plans, in an effort to make those funds more readily available to individuals affected by Hurricane Sandy. The new rules apply to loans and hardship distributions made between October 26, 2012 and February 1, 2013, if they are made for the purpose of assisting plan participants or their family members who live or work in a Sandy-related federally declared disaster area.

As described in an IRS news release:

“This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means 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.”

Highlights of the specific relief provided:

Plan Amendment. Plans can make qualifying loans or hardship distributions before the plan document has been formally amended to allow for loans or hardship distributions, so long as an amendment is made by the end of the first plan year beginning after December 31, 2012.
Broader Hardship Standards. Hardship distributions can be made for any Sandy-related hardship, not just the “safe harbor” hardship standards typically relied upon.
Relaxed Documentation Requirements. Documentation and procedural requirements related to hardship distributions can be relaxed to allow for quicker distribution processing, although reasonable efforts must be made to later obtain any documentation required by the plan terms.
Reliance on Participant Representations. Plans may rely on participant representations as to the need and amount of any Sandy-related hardship distribution, rather than requiring specific documentation.
No Suspension of Contributions. No post-distribution contribution restrictions (e.g., the 6-month contribution suspension) are required to be imposed following a Sandy-related hardship distribution.
These special rules apply only during the relatively short period of time ending on February 1, 2013. The normal spousal consent requirements continue to apply.



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