IRS issues Hurricane Sandy relief for loans and hardship distributions

The IRS has issued relief for victims of Hurricane Sandy and members of their families.  Specifically, IRS Announcement 2012-44 relaxes the rules for hardships and loans in 401(k) and similar employer-sponsored retirement plans for individuals affected by Hurricane Sandy.  The relief, which is identical to the relief granted to the victims of Hurricane Katrina in 2005, is limited to employees or former employees that meet one or more of the following three criteria:

1.    Employee’s principal residence on October 26, 2012, was located in one of the counties or Tribal Nations that have been designated as federally declared disaster areas for victims of Hurricane Sandy

2.    Employee’s place of employment was located in one of these counties or Tribal Nations on such date

3.    Employee’s lineal family members (e.g., children, parents, grandparents, grandchildren), spouse, or dependents, are described in either of the first two criteria

In determining the need for and the amount of a hardship distribution, plan sponsors may rely on the representations of the individual requesting the hardship unless they have actual knowledge to the contrary. 

The following is a summary of the relief granted:

·         Hardships and loans can be for any purpose (e.g., food and shelter)

·         Documentation requirements for loans and hardship distributions may be relaxed

·         Six-month ban on employee contributions following a hardship is NOT applicable

·         Applies to loans and hardship distributions made between October 26, 2012, and February 1, 2013

·         Relief can be granted prior to amending the plan document if the plan does not currently provide for loans or hardship distributions

All other requirements and limits applicable to loans and distributions continue to apply.  For example, the maximum amount available for loans under current rules and regulations still applies. In addition, unless a Congressional bill is passed providing otherwise, hardship distributions are taxable and may be subject to a 10% early-withdrawal penalty.

You can read more about the IRS relief in the official press release and IRS Announcement 2012-44. In addition, the IRS has set up a special page that provides a variety of content relating to programs available to the victims of Hurricane Sandy, including YouTube videos, a podcast, a listing of affected areas, and all relevant press releases.

Wells Fargo’s process for participant requests

Should a participant in a plan you sponsor contact us requesting a Hurricane Sandy-related hardship distribution, we will contact you to get your approval before we move forward with processing the distribution. If you approve the request, we will expedite the transaction and provide complimentary overnight mailing of these checks.

If you have any questions about this process, please contact your relationship manager.

Thank you.


Wells Fargo Institutional Retirement and Trust


Published by Wells Fargo Institutional Retirement and Trust
©2012 Wells Fargo Bank, NA. All rights reserved.

Recordkeeping, trustee and/or custody services are provided by Wells Fargo Institutional Retirement and Trust, a business unit of Wells Fargo Bank, N.A. Investments in retirement plans do not guarantee a profit or return of principal. The information contained herein and any information provided by employees and representatives of Wells Fargo Bank and its affiliates is for educational purposes only and does not constitute investment, financial, tax or legal advice. To the extent that information contained herein concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed by law. This information is general in nature and is not intended to be reflective of any specific plan. Please contact your personal investment, financial tax or legal advisor regarding your specific needs and situation. Please refer to your plan documents for more information about the specifics of your plan.

Investments in retirement plans, other than deposit accounts: NOT FDIC INSURED | NOT BANK GUARANTEED | MAY LOSE VALUE

Powered by IMN