Retirement Plans May Offer Employees Post-Hurricane Disaster Relief
In the aftermath of Hurricanes Beryl, Debby, Francine, Helene and Milton, among other recent disasters, it is critical for employers to know that their employees might find some disaster relief in their retirement plan accounts. In the past, employers had to wait for Congressional action before allowing disaster distributions from a retirement plan such as a 401(k) plan. However, SECURE Act 2.0, which passed in 2022, included permanent disaster relief for qualified plan participants.
If the retirement plan so provides, a “Qualified Individual” affected by any major disaster after December 27, 2020, will be eligible to receive distributions from the following:
- 401(k) plan
- Money purchase pension
- 403(b) plan
- Individual Retirement Account (IRA) or
- Governmental 457(b) plan.
A plan participant will be a “Qualified Individual” if their principal residence is in a qualified disaster area during the incident period, or if they experience an economic loss because of a qualified disaster. Information regarding qualified disaster areas and incident periods may be found in guidance distributed by the Federal Emergency Management Agency (FEMA). Generally speaking, a qualified individual is eligible for a distribution within 180 days of the date that FEMA declares that a weather event was a disaster.
If they reasonably represent that they are a qualified individual who was affected by a qualified disaster, they could receive distributions of up to $22,000. They would also be allowed, if desired, to repay the distribution back to the retirement plan over a three-year period. Finally, plan sponsors with qualified individuals could amend their retirement plans to increase the amount these employees could borrow from the plan.
Employers who have employees that have been affected by these recent hurricanes or any other major disaster as declared by FEMA should review their plans’ distribution and loan provisions. Employers can also determine if their retirement plans should be modified to give increased flexibility to affected employees.
If you would like further information regarding SECURE Act 2.0 or how natural disasters may affect your plans, please contact Caroline E. Perlis, Michael S. Williams, Karleen J. Green or a member of Phelps’ Labor and Employment team.