Following our September 18 article, “Retirement Plan and Leave Donation Programs During States of Emergencies,” the Internal Revenue Service (IRS) and Congress acted to provide additional relief and assistance opportunities to those affected by Hurricanes Harvey, Irma, and Maria.
In an effort to increase donations to assist those in need, the IRS issued guidance to allow employers to set up programs that enable employees to elect to have unused leave converted to cash and contributed to a charitable organization that provides relief to Hurricane Irma victims without subjecting the donating employee to taxation.
Additionally, Congress passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (“Disaster Act”), giving tax relief to certain distributions and repayment relief for certain retirement plan loans. The Disaster Act allows retirement plans to permit participants whose principal abode was in a disaster area on the date the hurricane passed through the applicable state (August 23 for Harvey; September 4 for Irma; September 16 for Maria) and “sustained an economic loss by reason of” the hurricane to take out a greater loan than generally allowed by law, and loan repayments by affected individuals can be delayed for a year. In addition, retirement plans can allow these participants to designate distributions received from the applicable start date (noted in parenthesis above) through December 31, 2018 as “Qualified Hurricane Distributions,” making these distributions exempt from the early distribution penalty, allowing participants to elect to spread out the income taxation over three years, and allowing these distributions to be fully or partially repaid to the plan over three years. Additional hardship distribution relief is also available, and all of these impose specific deadlines for providing fund access and amending retirement plan documents.
While these developments present laudable opportunities to assist those impacted by the 2017 hurricanes, employers should recognize that offering these benefits imposes additional burdens on the plan administrator (normally the employer) to properly administer them. Accordingly, employers and plan administrators should assess what kind of access or relief might be helpful to participants, and then consult with an attorney or advisor to weigh the obligations an employer must undertake to provide those benefits.