NRECA Employee Benefits Weekly

401(k) Plan Loan and Hardship Distribution Relief for Hurricane Harvey Victims

Posted on Posted in Retirement Benefits

The IRS is relaxing certain rules for 401(k) plan participants making it easier to use their retirement savings to recover from the flooding and destruction caused by Hurricane Harvey. Relief is available to help individuals located in the disaster areas designated by the Federal Emergency Management Agency (FEMA). Currently the relief applies to those living or working in Texas, but it may be extended to parts of Louisiana should storm damage warrant. 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 Harvey. To qualify for relief, hardship withdrawals or loans must be made on or after August 23, 2017 and no later than January 31, 2018. Spousal consent (sign-off) rules still apply. In addition, the normal income tax rules for distributions and the 10 percent early withdrawal penalty for those under age 59½ 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 August 23, 2017 and completed by January 31, 2018.
  • Eligibility: This relief is available for 401(k) plan participants who:

(a) Are Harvey victims because their principal residence or place of employment is located in the designated disaster area on August 23, 2017; 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 August 23, 2017.

Financial Hardship Distributions Due to Hurricane Harvey

  • Justification: Hardship distribution and/or loans can be for any reason related to the storm. We 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 (1) Hurricane Harvey Financial Hardship Distribution Statement in addition to (2) 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.
  • Administration: Unless the plan document is amended, the plan’s hardship withdrawal provisions remain unchanged. 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.

Loans Due to Hurricane Harvey

  • 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 and/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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