NRECA Employee Benefits Weekly

401(k) Plan Loan and Hardship Distribution Relief for California Wildfire Victims and Hurricane Maria

Posted on Posted in Retirement Benefits

The IRS has provided relief to certain 401(k) plan participants, making it easier for a participant to receive loans or hardship distributions to pay for their own or a relative’s financial hardship caused by either Hurricane Maria or the California wildfires.

This relief is available to help individuals located in a disaster area designated by the Federal Emergency Management Agency (FEMA). For details about which geographic areas qualify for special treatment of hardship distributions and loans, please visit fema.gov/disasters.

The IRS guidance applies to financial hardship distributions and loans from 401(k) plan accounts for individuals affected by either of the disasters. To qualify for relief, the participant or affected relative must have a principal residence or workplace in a FEMA-designated disaster area on the incident date—September 17, 2017, in the case of Puerto Rico; September 16 for the U.S. Virgin Islands; or October 8, 2017, in the case of California. In addition, the hardship withdrawals or loans must be made on or after the incident date and no later than March 15, 2018. The spousal consent (sign-off) rules and normal income tax rules still apply.

The relief rules apply for 401(k) plan hardship distribution and loan requests meeting the following criteria:

  • Timing: This relief applies to hardship distributions and loans beginning on or after the disaster incident date and completed by March 15, 2018.
  • Eligibility: This relief is available for 401(k) plan participants who are:
    • Hurricane Maria victims because (a) their principal residence or place of employment is located in the designated disaster area on the incident date; and/or (b) wish to assist a relative (i.e., lineal ascendant or descendant, dependent, or spouse) whose principal residence or place of employment is located in a FEMA-designated disaster area on the incident date; or
    • California wildfire victims because (a) their principal residence or place of employment is located in the designated disaster area on the incident date; and/or (b) wish to assist a relative (i.e., lineal ascendant or descendant, dependent, or spouse) whose principal residence or place of employment is located in a FEMA-designated disaster area on the incident date.

Hardship and Loan Distributions

  • Justification: Hardship distribution and/or loans can be for any reason related to the disaster incidents. NRECA will rely upon the participant’s statement regarding the need for the hardship distribution and for the amount requested, unless there is contrary information. We may request documentation supporting the distribution request after the fact.
  • Special Processing: To streamline these requests, participants must complete a Financial Hardship Distribution Statement for Hurricane Maria or the California Wildfires in addition to the 401(k) Pension Plan Financial Hardship Distribution Application posted on NRECA’s Employee Benefits website. Both forms should be submitted to the NRECA Retirement Plan Distribution (RPD) Unit per the instructions on the applications. Please note: Section B. Reason for Hardship Distribution Request of the 401(k) Pension Plan Hardship Distribution Application does not need to be completed.
  • Hardship Withdrawal Administration: Due to the special circumstances, the rule requiring a 6-month suspension of contributions following the date of a hardship distribution does not apply. Normal contributions to the 401(k) Plan may continue.
  • Loan Administration: A plan loan made pursuant to this relief must still satisfy legal requirements including limits on the amount that can be taken as a loan and timing restrictions with respect to repayment. If those requirements are not satisfied, a loan may be treated as a taxable distribution. Unless the plan document is amended, the plan’s loan provisions remain unchanged. Participants are unable to exceed the maximum number of loans or the maximum loan amount available based on the terms of the plan.

IMPORTANT: In order to allow hardship withdrawals or loans, the plan document must contain language authorizing them. If the cooperative does not currently allow hardship withdrawals the adoption agreement may be retroactively amended by December 31, 2018. The co-op must notify their field representative of their intent to amend the plan document and provide written permission to process hardship withdrawals prior to the amendment. If the co-op does not currently allow loans, the adoption agreement must be amended before the loans can be made.

Participant Resources

If you have any questions, contact your field representative directly or the Member Contact Center by phone at 866.673.2299 or email contactcenter@nreca.coop.

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