Trust Updates Archive

20050808BSA EBT Plans Authorized to Make Loans, Hardships Distributions to Katrina Victims

(Sept. 16, 2005--Chicago, IL)--Participants in 401k, 403b, and certain 457 employee benefit plans are eligible to take advantage of streamlined loan procedures and hardship distribution rules, according to the IRS. Participants in defined-benefit and money-purchase plans--which generally cannot make in-service distributions except from separate accounts--are not covered by the announcement. IRA participants, who are prohibited from taking out loans, may be eligible to receive distributions under liberalized procedures.

The IRS late yesterday released Announcement 2005-70 ( which substantially relaxes administrative rules regarding hardship loans and distributions. To qualify for relief under the IRS announcement, the hardship must be "on account of a hardship resulting from Hurricane Katrina and be made on or after August 29, 2005 and no later than March 31, 2006." Plan administrators, says the IRS, may rely on representations from the employee or former employee as to the need for and the amount of hardship. Maximum distribution limits  per participant remain in effect. The U.S. Department of Labor has advised the IRS that "it will not treat any person as having violated the provisions of Title 1 of ERISA solely because they complied with the provisions of the [IRS] announcement."

Participants of eligible plans can take a hardship distribution or borrow up to the specified statutory limits from their retirement plan to repair or replace a home or for some other purpose. It also means that a person who lives in another part of the country can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Hardship loans and distributions can only be made if a plan authorizes them. For those plans wanting to make such loans or distributions but which currently do not allow for them, the IRS announcement authorizes the issuing of such loans or distributions prior to amending the plan. The plan must be amended no later than the end of the first plan year beginning after December 31, 2005, according to the agency.

-- Copyright ©2005 A.M. Publishing, Inc., Trust Regulatory News

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