Sandy Strikes Even Benefit Plans – Relief Offered
In response to the devastating effects of Hurricane Sandy, both the IRS and DOL have issued enforcement relief to individuals, as well as employers and plan sponsors relating to certain employee benefit plan responsibilities and obligations, as long as good faith effort to comply with the current rules is made.
- Group Health Plan Compliance. The DOL provides compliance relief to group health plans that are unable to meet certain pre-established obligations such as deadlines for filing benefit claims or COBRA elections. Plan sponsors are encouraged to make reasonable accommodations to prevent the loss of benefits and take steps to minimize the possibility of individuals losing benefits.
- Loans and Hardship Distributions. According to IRS Announcement 2012-44, qualified plans are permitted to make loans or hardship distributions to affected employees who wish to quickly access available retirement plan funds to alleviate hardships caused by Hurricane Sandy. Eligible individuals entitled to receive a loan or hardship are those whose principal residence on October 26, 2012, was located in one of the counties or Tribal Nations identified as covered ‘federally-declared’ disaster area (these identified areas are available on the IRS website). In addition, the hardship distribution requirement that freeze contributions to 401(k) and 403(b) plans for 6 months following the distribution would not apply. Loans or distributions must be made on or after October 26, 2012, and no later than February 1, 2013.
- Participant Contributions and Loan Repayments. For qualified retirement plans, contributions and repayments of participant loans are required to be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but no later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer. The DOL provides compliance relief to employers or service providers acting behalf of an employer such as payroll vendors, located in designated affected areas who may not be able to forward participant payments and withholdings to plans within the prescribed timeframe.
- Blackout Notices. Affected plans are given relief from the requirement of providing a 30-day advanced notice of a blackout period of suspension, limitation or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans, or obtain other distributions from individual account plans.
- Leave Donation Program. The IRS announced relief to support leave-based donation programs to help Sandy victims. According to IRS Notice 2012-69, employees can donate their vacation, sick or personal leave in exchange for employer cash payments (made prior to January 1, 2014) to qualified tax-exempt organizations providing relief to Sandy victims. The donated leave would not be included in income or wages of employees; and employers are able to deduct the cash payment amount.
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.
As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.