Breaking News as we finalized this alert: KETRA

IRS Katrina Relief Of Announcement 2005-70
Rev. 09/29/05, E-mail Alert 2005-70

Announcement 2005-70 is presented below with some minor edits and sub-headings for clarity.

Katrina Affected Individuals

— An employee or former employee whose principal residence or place of employment on August 29, 2005 was in a Katrina designated disaster area later declared eligible for Individual Assistance by the Federal Emergency Management Agency in Louisiana, Mississippi or Alabama, OR
— A lineal ascendant or descendant, dependent or spouse of someone qualified above.

Plans Affected for Hardship
For relief purposes, a "qualified employer plan" is a plan or contract meeting the requirements of tax code sections 401(a), 403(a) or 403(b), and, for purposes of the hardship relief, which could, if it contained enabling language, make hardship distributions.
Also 457(b) plans maintained by an eligible employer described in § 457(e)(1)(A), and any hardship arising from Hurricane Katrina is treated as an "unforeseeable emergency" for purposes of distributions from such plans.

For example, a profit-sharing or stock bonus plan that currently does not provide for hardship or other in-service distributions may nevertheless make Katrina-related hardship distributions pursuant to this announcement, except from QNEC or QMAC accounts or from earnings on elective contributions.

Defined Benefit and Money Purchase Plans are generally unavailable for hardship
A defined benefit or money purchase plan, which generally cannot make in-service hardship distributions, may not make hardship distributions pursuant to this announcement, other than from a separate account, if any, within such plan containing either employee contributions or rollover amounts.

Hardship Amount and Elimination of Suspension of Deferrals
The amount available for hardship distribution is limited to the maximum amount that would be permitted to be available for a hardship distribution under the plan under the Code and regulations. However, the relief provided by this announcement applies to any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution contribution restrictions are required. For example, regulations under § 401(k) provide safe harbor hardship distribution standards wherein a hardship is deemed to exist only for certain enumerated events, and after receipt of the hardship amount, the employee is prohibited from making contributions for at least 6 months. The plan is not required to suspend the employee from making deferrals due to the hardship distribution.

Hardship Representations
Plan administrators may rely upon representations from the employee or former employee as to the need for and amount of a hardship distribution, unless the plan administrator has actual knowledge to the contrary, and such distribution is treated as a hardship distribution for all purposes under the Code and regulations.

Plans With No Provision for Hardship or Loan
If the plan does not provide for loans or hardship distributions, the plan must be amended to provide for loans or such emergency distributions no later than the end of the first plan year beginning after December 31, 2005. To qualify for the relief under this announcement, a hardship distribution must be made 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. In the case of plan loans made pursuant to this announcement, such loans must satisfy the requirements of § 72(p).

Plan distribution documentation requirements disregarded – for expediency -- but documentation to be collected later -- as soon as practicable.
A retirement plan will not be treated as failing to follow procedural requirements for plan distributions (in the case of all retirement plans, including IRAs) or loans (in the case of retirement plans other than IRAs) imposed by the terms of the plan, when such requirements are disregarded for Katrina related reasons/individuals from August 29, 2005 through March 31, 2006 -- provided the plan administrator (or financial institution in the case of distributions from IRAs) makes a good-faith effort under the circumstances to comply with such requirements.

Keep in mind that the relief does require the plan administrator (or financial institution in the case of IRAs) to make a reasonable attempt to assemble any foregone documentation as soon as practical.

For example, if spousal consent is required for a plan loan or distribution and the plan terms require production of a death certificate if the employee claims his or her spouse is deceased, the plan will not be disqualified for failure to operate in accordance with its terms if it makes a distribution or loan to an individual described in the first paragraph under "Relief" in the absence of a death certificate if it is reasonable to believe, under the circumstances, that the spouse is deceased, the distribution is made no later than March 31, 2006, and the plan administrator makes reasonable efforts to obtain the death certificate as soon as practical. For purposes of this announcement, "retirement plan" has the same meaning as "eligible retirement plan" under § 402(c)(8)(B).

DOL support of IRS Announcement
The Department of Labor has advised Treasury and the Internal Revenue Service that it will not treat any person as having violated the provisions of Title I of the Employee Retirement Income Security Act solely because they complied with the provisions of this Announcement.

IRS Announcement 2005-70