The IRS recently released Announcement 2012-44, which allows 401(k) and profit sharing plans, 403(b) tax-sheltered annuities, and governmental 457(b) deferred compensation plans to provide loans and hardship withdrawals to participants who live or work in a federally declared disaster area as a result of Hurricane Sandy (or who have certain family members who live or work in such an area) under less stringent procedures than would normally apply. To qualify for this relief, loans or hardship withdrawals must be made on or before February 1, 2013.
A plan may provide a hardship distribution for any reason, for example, to provide food and shelter. Plan administrators may rely on the representations made by a participant as to the need for a distribution to expedite the distribution process, unless the administrator has actual knowledge that the representations are false, but must make a reasonable attempt to obtain appropriate documentation following the distribution. The six-month freeze on elective deferrals that normally applies when a hardship distribution is made will not apply. Certain limitations and procedures will remain in place for distributions, however, such as the maximum amount of the distribution, prohibitions on distributions from QNEC and QMAC accounts and from earnings on elective contributions, and penalty taxes on distributions made before age 59½.
Loans generally must continue to satisfy the requirements of Code Section 72(p), but those requirements may be disregarded if warranted in order to extend relief to a victim of the storm. Plan sponsors should continue to make a "good faith diligent effort" to comply with any requirements and obtain necessary documentation with respect to a loan as soon as practicable.
Finally, plans that do not allow for loans or hardship distributions may make such loans or distributions to affected participants despite the plan terms so long as the plan is amended no later than the end of the first plan year beginning on or after January 31, 2013.