Regulators Provide Relief for Hurricane Irma Victims

Loan and hardship rules, in addition to reporting requirements, have been relaxed.

The Internal Revenue Service (IRS) announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Irma and members of their families. This is similar to relief provided last month to victims of Hurricane Harvey.

Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

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Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster areas affected by Hurricane Irma and designated for individual assistance by the Federal Emergency Management Agency (FEMA). For a complete list of eligible localities, visit https://www.fema.gov/disasters. To qualify for this relief, hardship withdrawals must be made by January 31, 2018.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a victim of Hurricane Irma 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.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons 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 Announcement 2017-13.

The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less.  Under current law, hardship distributions are generally taxable and subject to a 10% early-withdrawal tax.

In addition, in IRS Notice 2017-49, the IRS, the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) announced relief similar to and in addition to that already provided to Hurricane Harvey and Hurricane Irma victims.

Participants’ Trust in Retirement Plan Providers Rises

It had sunk to an all-time low in 2016.

While not very high, participants’ trust in retirement plan providers has risen to 11% this year, according to the National Association of Retirement Plan Participants’ (NARPP) Participant Trust and Engagement Study. Their trust in retirement plan providers had hit an all-time low of 8% in 2016. Confidence in their providers has also risen, to an all-time high of 24%.

NARPP says that trust in retirement plan providers is critical, as it affects plan participation, deferral rates and the use of plan tools. “Engagement is grounded in emotional factors like, feeling secure, having confidence about the future and feeling in control,” says Laurie Rowley, co-founder of NARPP. “Trust catalyzes the efficacy of these emotional factors into improved financial decision-making.”

The study also found that participants’ satisfaction with the education and communication provided to them in their plan is at 46%, up from 43% in 2016. NARPP found that trust rises when participants believe that the information and education they receive is in their best interest, the education is easy to understand, their provider demonstrates an interest in their long-term financial security and helps them achieve their financial goals.

A full copy of the report, based on an online survey of 4,000 retirement plan participants, can be requested by emailing NARPP at Info@NARPP.org, or by calling 415-509-9687.

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