Employee Benefit Plan Sponsors Impacted By Recent Hurricanes

Nancy Itnyre
December 10, 2005 — 2,611 views  
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In recent months, the Internal Revenue Service (“IRS”), Department of Labor (“DOL”), and Pension Benefit Guaranty Corporation (“PBGC”) have provided relief for individuals and employers impacted by recent hurricanes in the south eastern part of the United States. This article provides a brief summary of some of the relief available to sponsors of employee benefit plans and plan participants impacted by hurricanes Katrina, Rita, and Wilma. Generally, certain relief is available to employers and participants located or residing in presidentially designated areas in Louisiana, Mississippi, Alabama, Texas, and Florida. However, not all relief is available to employers and participants in each of those areas.

The following is a brief summary of some of the hurricane relief available to affected plan sponsors and participants:

Filing deadline extensions – Filing deadline extensions have been granted for Forms 5500 and Forms 5500 EZ.

Participant contributions and loan repayments – Employers are generally required to forward participant contributions and loan repayments withheld from an employee’s wages to the qualified plan, within a certain timeframe monitored by the DOL. The DOL will not enforce these provisions with respect to a temporary delay to the extent the employer acts prudently and in the interest of its employees in complying with the requirements as soon as practicable under the circumstances.

Blackout notices – The DOL will not allege a violation of the blackout notice requirements, which generally require 30 days advance written notice to participants whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period, under certain hurricane-related circumstances.

Qualified plan loans limits – Employers may permit qualified plan loans up to the temporary maximum limits of $100,000, whether or not the terms of the plan currently permit plan loans. Additionally, employers may permit family members living outside of the disaster areas to obtain plan loans to assist family members living in disaster areas.

Early plan distributions – Employers may permit individuals whose principal residence is in one of the disaster areas and who suffered an economic loss as a result of a hurricane to obtain a distribution of up to $100,000 from their 401(k) or IRA, for example, without penalty. Individuals receiving such distributions qualify for rollover treatment and will not be taxed on the distributions if the amounts are rolled over or repaid to the distributing plan within three years of the distribution.

Hardship distributions from qualified plans – Employers may permit hardship distributions from qualified plans, whether or not the terms of the plans currently permit hardship distributions. Additionally, employers may permit family members living outside of the disaster areas to obtain hardship distributions to assist family members living in disaster areas.

Disregard of certain time periods – Welfare and pension plans that are subject to ERISA must disregard the period from August 29, 2005 through January 3, 2006 when determining certain time periods related to the following:

  • COBRA (e.g., 60-day period to elect continuation coverage, premium payment due dates, notification date related to qualifying event or determination of disability, date for providing COBRA election notice)
  • HIPAA (e.g., 63-day break in coverage period with respect to determining creditable coverage, 30-day period for securing creditable coverage without a preexisting condition exclusion for certain children, 30-day period to request special enrollment in a group health plan, date for providing a certificate of creditable coverage)
  • Claims for benefits (e.g., deadline for filing an initial claim for benefits, deadline for filing an appeal of an adverse benefits determination deadline)

Plan Amendments – Employers must retroactively amend their plans to bring the terms of the plan into accordance with any change authorized in the operation of the plan (e.g., permitting plan loans, hardship distributions, etc.).

Before adopting any of the above relief provisions for purposes of its plan or offering relief to plan participants, employers should confirm that the relief is available to their plan and participants and ensure compliance with certain timing requirements in granting or obtaining relief.

Please contact us if you have questions regarding the relief summarized above or regarding your eligibility for relief. Please visit our web site at www.butzel.com for additional publications by Butzel Long.

For additional information regarding these articles, please contact the authors:

Robert G. Buydens, Editor: 313 225 7013 e-mail: [email protected]

Nancy G. Itnyre: 313 983 7445 e-mail: [email protected]

Nancy Itnyre

Butzel Long