Following the Internal Revenue Service’s (IRS’s) relaxation of loans and hardship withdrawals from 401(k) plans for victims of Hurricane Maria and the October wildfires in California, the Department of Labor (DOL) has issued guidance on how these plans can still remain in compliance with the Employee Retirement Income Security Act (ERISA).
If a plan sponsor and participant comply with IRS Announcement 2017-15 on the relaxed verification procedures for loans or hardship withdrawals, DOL says they will not treat them as having violated Title I of ERISA.
When repaying the loan, the DOL says that those payments constitute plan assets and that employers must forward the money “to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts were paid to or withheld [from a participant’s wages] by the employer.”
However, the DOL “recognizes that some employers and service providers, such as payroll processing services, located in identified covered disaster areas will not be able to forward participant payments and withholdings to employee pension benefit plans within the prescribed time frame.” Instead, the DOL will expect those employers and service providers to forward the repayments “as soon as practical.”
If any of the retirement plans in the affected areas are unable to receive investments, issue loans or issue other distributions within three business days, they will have fallen into a blackout period, DOL says. ERISA normally requires plans to issue 30 days’ notice to participants prior to a blackout period, but given the fact that Hurricane Maria is a natural disaster, plans affected by the hurricane fall under the regulation’s exception to the advance notice requirement, DOL says.
With respect to health care for participants, beneficiaries and sponsors of plans affected by Hurricane Maria, DOL and IRS will be extending the deadlines for them to “make critical coverage and other decisions affecting benefits.” The deadlines will be published in the Federal Register on November 21.
DOL also says that health care plans should accommodate participants and beneficiaries impacted by both Hurricane Maria and the California wildfires by minimizing the “possibility of individuals losing benefits because of a failure to comply with pre-established time frames.” Likewise, the DOL says it will take into consideration whether the physical disruption of a service provider’s place of business renders them unable to process a claim.