A publication of the ASPPA Government Affairs Committee
January 13, 2006 :: No. 06-03
©2006, ASPPA All rights reserved, except permission is expressly granted to duplicate this publication for internal purposes only.
Hurricane Relief Update
J
By Richard A. Hochman, APM, McKay
Hochman Company, Inc., Butler, NJ
Background
In response to the hurricane damage that impacted many people
in the Gulf Coast area, the federal government provided relief
from some of the rules that normally apply to retirement plans.
The relief was provided in guidance issued by the IRS, the
DOL/EBSA and the PBGC. Congress also enacted relief
through the Katrina Emergency Tax Relief Act (KETRA) and
the Gulf Opportunity Zone Act (GOZA). KETRA, as the name
indicates, deals only with Hurricane Katrina, while GOZA
reflects relief for those who suffered a loss under either
Hurricane Rita or Hurricane Wilma.
The agency relief deals with issues that impact the operation
of retirement plans, including filing deadlines, contribution
deadlines and amendments. The level of agency relief depends
on the level of damage a county or parish received and the kind
of assistance that was made available from the Federal Emergency Management Agency (FEMA).
The statutory relief was, for the most part, limited in scope to
distribution and loan issues, but applied to all those in the
declared disaster area regardless of the level of agency relief
available in their county or parish.
Some of the issues reviewed in this ASAP were discussed
previously in ASPPA asaps 05-26 and 05-27; this asap is
intended to recap and update the current status of relief.
Agency Relief (IRS, EBSA and PBGC)
IRS relief came in guidance found in Notices 2005-60, 200573, 2005-84 and 2005-92, Announcement 2005-70 and
Information Releases 2005-84, 2005-90, 2005-91, 2005-96,
2005-105, 2005-109, 2005-112, 2005-122, 2005-128 and 2005137.
IRS relief applies to areas under Presidential declarations in
Florida, Louisiana, Mississippi, Alabama and Texas. FEMA has
the right to designate the areas affected by the hurricanes as
eligible for either “public” or “individual” assistance. “Public
assistance” basically applies to infrastructure repair, such as
clearing roads. “Individual assistance” allows for relief to
specific taxpayers. The relief granted by the IRS is not automatic. It is only available upon specific IRS action and varies
based on the FEMA designation that an area has been assigned.
Agency relief is greater in areas declared eligible for “individual
assistance.”
Form 5500: For plans with filing deadlines (including
extensions) on or after August 29, 2005 (August 24, 2005, for
Florida counties), the filing deadline is extended to February
28, 2006.
An extension was also granted to portions of Louisiana and
Texas affected by Hurricane Rita, if the return was due on or
after September 23, 2005, and Hurricane Wilma, if the return
was due on or after October 23, 2005. These extensions are
available if the plan sponsor’s or plan administrator’s principal
place of business is located in the declared disaster area (any
county or parish eligible for either “public” or “individual”
assistance), or if the filer cannot obtain the necessary information from a service provider located in a related declared
disaster area.
Minimum Funding Contributions: The deadline for
minimum funding contributions or applying for a waiver is
extended to February 28, 2006, if otherwise due on or after
August 29, 2005. The extension is available if a plan sponsor’s
principal place of business, or plan recordkeeper’s or plan
actuary’s office, was located at the time of Hurricane Katrina in
any of the parishes and counties FEMA declared eligible for
disaster relief. The extension only applies to those counties and
parishes declared as eligible for “individual” assistance. No
Florida counties were declared such due to Katrina. No relief
was provided for those affected by Hurricanes Rita or Wilma.
Continued on next page
ASPPA asaps are published as an information
service for subscribers. Articles are general in nature
and are not a substitute for professional advice or
opinion in a particular case.
January 13, 2006 :: No. 06-03 :: page 2
Hardship Distributions: Qualified plans, other than defined
benefit and money purchase plans, can make hardship distributions for a need arising from Hurricane Katrina. The plan
administrator may rely upon the employee’s representations
regarding the distribution amount. The plan administrator can
disregard otherwise applicable plan imposed procedural
requirements so long as the administrator makes a good faith
effort to comply with such requirements and makes a reasonable
effort to collect any foregone documentation as soon as
possible. Safe-harbor rules do not need to be followed for
401(k) plans.
Employees and former employees whose principal place of
employment at the time of Katrina was located in any of the
counties and parishes in Alabama, Louisiana or Mississippi that
FEMA declared eligible for “individual” assistance (or whose
lineal ascendant or descendant, dependent or spouse had a
principal place of residence or employment in one of those
counties or parishes at that time) may receive hardship distributions on or after August 29, 2005, but not later than March 31,
2006.
Plans that do not currently permit hardship distributions will
have to be amended no later than the last day of the 2007 plan
year if a hardship distribution is given. No similar relief was
provided for those affected by Hurricanes Rita or Wilma.
KETRA and GOZA changed these rules (see below), but do
not include relief for family members to take distributions on
behalf of those living in the various hurricane disaster areas.
Loans: Qualified plans can make loans for a need arising
from Hurricane Katrina. Plan administrators can disregard
otherwise applicable plan imposed procedural requirements.
The same rules apply as described for distributions (see above),
including the ability to provide for loans to those with lineal
ascendants and descendents in the declared disaster area. Again,
such loans are only applicable to those eligible for “individual”
assistance.
PBGC Premiums: The deadline is extended until February
28, 2006, for making any premium filing, if otherwise due after
August 29, 2005 (August 24 for Florida). Hurricane Rita relief
was also granted for those in the applicable areas eligible for
either “public” or “individual” assistance, as were the 20
Florida counties declared a disaster area as a result of Hurricane
Wilma.
The Disaster Relief Announcements [Ann. 2005-10, 11 and
13] do not grant specific disaster relief for all filings. For
example, they do not provide relief for certain filings that
involve particularly important or time-sensitive information
where there may be a high risk of substantial harm to participants or the PBGC insurance program [i.e., notices of large
missed contributions under section 302(f) of ERISA (Form
200), advance notices of reportable events under ERISA section
4043, and annual financial and actuarial information reports
from certain controlled groups under ERISA section 4010]. Katrina Emergency Tax Relief Act (KETRA)
Special Tax-Favored Distributions: Plans can make qualified
distributions to participants who have sustained an economic
loss due to Hurricane Katrina. Such distributions are not subject
to the 10% excise tax on early distributions or the 20%
withholding requirement. Qualified Hurricane Katrina distributions are not subject to federal income tax to the extent they are
repaid over the three-year period immediately following the
distribution. An individual may not receive qualified Hurricane
Katrina distributions exceeding $100,000. This provision is
available for distributions made on or after August 25, 2005, but
by January 1, 2007, to an individual whose principal place of
residence on August 28, 2005, was located in a Hurricane
Katrina declared disaster area and who has sustained an
economic loss. The amount available for distribution need not
be limited to a loss amount. Thus, someone with a $10,000 loss
could obtain a $100,000 distribution assuming at least
$100,000 was in the participant’s account at the time. The
provision does not reflect the family member language made
available under IRS guidance, but does include the entire
disaster area including Florida.
Loans: Plans may make loans to certain participants and
provide special repayment terms for such individuals. In the
case of loans to a qualified individual made after September 23,
2005, but before January 1, 2007, the loan limit is the lesser of
$100,000 or 100% of the participant’s vested account balance.
Also, for qualified individuals with loans outstanding on or
after August 25, 2005, any repayment due date that falls
between August 25, 2005, and December 31, 2006, is delayed
for one year. This block of time is disregarded when determining the five-year maximum loan repayment period. The areas
affected include the entire declared disaster area, including
Florida.
Amendments: The amendment period for adding the
appropriate Hurricane Katrina provisions, such as distributions
and loans, is the last day of the plan year beginning in 2007.
Gulf Opportunity Zone Act 2005 (GOZA)
The Gulf Opportunity Zone Act 2005 (GOZA), signed into law
on December 21, 2005, extended the Katrina Emergency Tax
Relief Act (KETRA) for distributions and loans from eligible
retirement plans to the victims of Hurricanes Rita and Wilma.
Continued on next page
Search ASPPA asaps online by logging in at www.asppa.org
Submit your conference IRS/DOL questions online at
www.asppa.org/forms/irs_question.htm
January 13, 2006 :: No. 06-03 :: page 3
Generally, the same KETRA rules were extended to GOZA. The
obvious changes generally pertain to the applicable designated
counties (or parishes) and the effective dates beginning with the
date of the applicable storm. Otherwise, the provisions extended
in GOZA are identical to KETRA. It would seem realistic to
expect the IRS to issue guidance similar to Notice 2005-92,
which explained the tax treatment of KETRA distributions, to
also apply to distributions related to Hurricanes Rita and Wilma
(with the applicable dates for each hurricane).
these family members do not get the benefits of
KETRA, such as the three-year income tax inclusion
period or the three-year repayment period.
• The distribution dates should be watched since the
agency and statutory guidance are different.
• The IRS updated their guidance for plan amendment
dates to comply with the KETRA and GOZA provisions.
Thus, amendments must now be completed by the end of
the 2007 plan year.
Inconsistencies in Guidance
• To the extent that the IRS provision is more liberal,
such as the inclusion of additional family members,
Search ASPPA asaps online by logging in at www.asppa.org
Submit your conference IRS/DOL questions online at
www.asppa.org/forms/irs_question.htm