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IRS Provides Benefit Plan Relief to Louisiana Flood Victims

On August 14, 2016, President Obama declared a major disaster in the State of Louisiana due to the severe storms and flooding that took place in several State parishes ("Louisiana Storms"). Following the declaration, the Internal Revenue Service (IRS) issued guidance postponing certain tax filings and payment deadlines for taxpayers who reside or work in the disaster area. The relief also provides qualifying individuals with expanded access to their retirement plan assets to alleviate hardships caused by the Louisiana Storms. Below is a summary of the filing extension for the Form 5500 series and administrative changes that employers can make to expedite plan loans and hardship distributions to Louisiana Storm victims.

Extension of Filing Deadlines 

Plan sponsors in the affected parishes listed below now have until January 17, 2017, to file Form 5500 series returns, provided the return had an original or extended due date falling on or after August 11, 2016, and before January 17, 2017.

Relaxation of Hardship Distribution and Plan Loan Requirements

IRS Announcement 2016-30 ("Announcement"), issued on August 30, 2016, modifies certain verification procedures that may be required under retirement plans with respect to loans and hardship distributions. This relief allows qualifying individuals to quickly access assets in their "qualified employer plan" to alleviate hardships caused by the Louisiana Storms. Qualifying individuals include employees and former employees who have a principal residence or place of employment on August 11, 2016, located in one of the parishes identified below or who have a son, daughter, parent, grandparent, or other dependent with a principal residence or place of employment in one of the listed parishes on that date ("Qualifying Individuals").

  • Acadia

  • Ascension

  • Avoyelles

  • East Baton Rouge

  • East Feliciana

  • Evangeline

  • Iberia

  • Iberville

  • Jefferson Davis

  • Lafayette

  • Livingston

  • Pointe Coupee

  • St. Helena

  • St. Landry

  • St. Martin

  • St. Tammany

  • Tangipahoa

  • Washington

  • West Feliciana

  • Vermilion

Other parishes may be added based on damage assessment by Federal Emergency Management Agency (FEMA). 

The amount available for a hardship distribution is limited to the maximum amount permitted under the retirement plan and the IRS rules. However, Qualifying Individuals are permitted to use hardship proceeds for any hardship arising from the Louisiana Storms, for example, to repair or replace a home and to acquire food and shelter. Also, a Qualifying Individual may continue to make elective deferrals into the plan (the usual requirement to suspend deferrals for six months does not apply). Plan administrators may rely on the Qualifying Individual's representations as to the need for and amount of the hardship distribution, unless the plan administrator has actual knowledge to the contrary. As soon as practicable the plan administrator can obtain any required documentation from the participant. Hardship distributions are includible in gross income and subject to the 10 percent excise tax that normally applies to a payment made before age 59-1/2 (unless Congress provides relief).

The IRS is also relaxing procedural and administrative rules that may apply to plan loans for a need arising from the Louisiana Storms. For example, if spousal consent is required for a plan loan or distribution and the employee claims his or her spouse is deceased, the plan may make the loan in the absence of a death certificate if it is reasonable to believe, under the circumstances, that the spouse is deceased, and the plan administrator makes reasonable efforts to obtain a copy of the death certificate as soon as practicable.

For purposes of the Announcement, a "qualified employer plan" includes a plan that meets the requirements of Code sections 401(a), 403(a), and 403(b), or a plan described in Code Section 457(b). Defined benefit plans and money purchase pension plans qualify, but only with respect to in-service hardship distributions from separate accounts, such as employee contributions or rollover amounts.

To qualify for relief, the plan loan or hardship distribution must be made no earlier than August 11, 2016, and no later than January 17, 2017.

If your retirement plan does not provide for loans or hardship distributions but you would like to allow storm victims to obtain loans or hardships, or if you would like to add flexibility to existing plan provisions, the plan must be amended no later than the end of the first plan year beginning after December 31, 2016 (December 31, 2017, for calendar year plans).

© 2020 Jones Walker LLPNational Law Review, Volume VI, Number 250

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About this Author

Tim Brechtel Employee Benefits Attorney Jones Walker
Partner

Tim Brechtel began his career with the national accounting firm PricewaterhouseCoopers. His current practice focuses on assisting employers with establishing, administering, merging, and terminating qualified retirement plans, such as 401(k) plans and employee stock ownership plans (ESOPs), as well as nonqualified deferred compensation arrangements under Code Section 409A, health plans, cafeteria plans, severance plans, separation agreements, health savings accounts, flexible spending accounts, transportation, and other fringe benefit plans. His retirement plan...

504-582-8236
Susan Chambers Tax Lawyer Jones Walker Law Firm
Partner

Susan Chambers is a partner in the Tax & Estates Practice Group and is based in the firm's New Orleans office. She concentrates her practice on the regulatory, legal and business issues that arise in the drafting, implementation and administration of qualified retirement plans, executive compensation, and employee health and welfare plans. Ms. Chambers has been practicing tax law for more than 20 years and is certified as a Tax Specialist by the Louisiana Board of Legal Specialization.

In the area of qualified retirement plans and executive compensation, Ms. Chambers works with clients to address tax and fiduciary issues involved in cash balance plans, profit-sharing plans, money purchase plans, employee stock ownership plans ("ESOPs") and pension plans, as well as executive deferred compensation plans subject to IRS Code Section 409A. She has in-depth knowledge of Employee Retirement Income Security Act ("ERISA") fiduciary responsibilities, plan operations and administrative issues, plan audits, IRS program for correcting plan qualification defects, and Department of Labor ("DOL") voluntary fiduciary correction program. She has extensive experience in the drafting of plans, summary plan descriptions, associated resolutions and consents, and other required notices and disclosures to employees.

504-582-8394
Ricardo X. Carlo Tax Lawyer Jones Walker Law Firm
Associate

Ricardo X. Carlo is an associate in the firm's Tax & Estates Practice Group and practices from the firm's New Orleans office. His practice focuses primarily on employee benefits and executive compensation. Mr. Carlo is a 2003 graduate of the Inter American University of Puerto Rico School of Law, where he received his juris doctor degree. In 2010, he received his LL.M. in Taxation from Georgetown University Law Center. Mr. Carlo received his Bachelor of Science in Marketing, from Florida State University in 1998. He is admitted to practice in Puerto Rico, and is...

504-582-8409