Last week the IRS announced that 401(k) plans and certain similar employer-sponsored retirement plans can make loans and hardship distributions to help victims of Hurricane Harvey. Under the relief, a qualified employer retirement plan will not be treated as failing to satisfy any requirement under the Internal Revenue Code merely because the plan makes a loan or a hardship distribution for a need arising from Hurricane Harvey. For example, 401(k) plan regulations identify very specific safe harbor events that allow a plan to process a “hardship” distribution, such as where the distribution is necessary to pay certain medical expenses. The relief that the IRS just announced allows retirement plans to process a hardship distribution — even if it is not one of the typical specified hardship events — if it is instead related to Hurricane Harvey and otherwise meets the conditions contained in the relief. This is just a snapshot description of the relief; there are other benefits as well.
Employees eligible for hardship distributions
The hardship distribution relief applies to Oklahoma employers with employees in the Texas counties impacted by Hurricane Harvey. It also applies to Oklahoma employers who have employees with spouses, sons, daughters, parents, grandparents and/or other qualifying relatives in those counties.
Additional IRS relief supports leave-based donation programs
Yesterday, the IRS also issued separate, different relief designed to encourage employers to adopt leave-based donation programs for victims of Hurricane Harvey. Under this type of program, employees would be allowed to forego their vacation, sick or personal leave in exchange for cash payments the employer makes to qualifying charitable organizations before January 1, 2019. Donated leave would not be included in the income or wages of the employees, and the employer would be permitted to deduct the cash payment as a business expense.
Employer next steps
If you are interested in taking advantage of this special IRS relief, please let your McAfee & Taft Employee Benefits attorney know, as there are specific rules that have to be followed.