Amendments for Hurricane Harvey Relief Per 2017-11

[401 Chaos]

Interested in thoughts on the following as there seems to be some difference of opinion in the benefits community regarding when plan amendments are required to take advantage of the expanded relief offered under IRS Announcement 2017-11.

If you have a 401(k) Plan that currently permits safe harbor hardship distributions along with the regular 6-month suspension of elective deferrals following a hardship distribution and the plan wants to permit broader hardship distributions per 2017-11 (including distributions for non-safe harbor purposes, for affected relatives of a plan participant, and also to waive the 6-month suspension), is the plan required to adopt conforming amendments or can it instead simply modify its usual procedures for those cases falling within the 2017-11 parameters?  

My general interpretation of 2017-11 is that it only requires plan amendments if a plan does not currently permit loans or hardships and desires to make these per 2017-11.  However, if the plan already permits these, it seems to me a formal amendment is not required provided the plan sponsor complies with 2017-11.  (Seems to me if the IRS's intent was to require conforming amendments in all cases, it would say that in 2017-11 rather than simply noting that amendments are required if the plan does not otherwise permit loans or hardships.)  Others, however, think a plan must be amended to specifically track 2017-11 (e.g., to permit waiver of the 6-month delay requirement if the plan desires to waive that in connection with 2017-11).  Thoughts?

[MoJo]

We're going to do amendments regardless - for any affected client who wants to expand the hardship criteria.  We take the position that the document is gospel - and needs to reflect actual operation - and that the relief given, if taken, should be part of the permanent plan records.  For us, that means doing an amendment.

[401 Chaos]

Thanks much MoJo.  

I dont disagree that a plan amendment is the preferred way to address but I've been asked by a client specifically whether a plan amendment is legally required or if they cannot simply adjust their administrative procedures as needed to track the relief provided.  Apart from some particular sensitivities around having to get their Board to adopt such an amendment (which is an unusually big deal for them due to some corporate structure idiosyncrasies), they are also suspect of having to pay us to assist with that.  Of course, just doing the amendment may be cheaper than going back and forth over whether it is absolutely required. . . .

[MoJo]

"Legally required" is a question that we believe is "irrelevant."  The relief given says an amendment is required to "add" loans or hardship features - and presumably to specify that they may be given under the terms of the relief granted, and can be done retroactively under certain conditions.  The relief does not say an amendment is not required to expand hardship criteria as provided in the announcement, hence one could argue that absent affirmatively indicating that an amendment is not required, it actually is required.

That's an argument we choose not to engage in.  We counsel clients that an amendment is the "appropriate" approach (whether for new hardship/loan provisions, or to expand existing criteria accordingly).  Hardship criteria is a plan document specific issue (safe harbor, facts and circumstances, etc.) so why would an amendment be "problematic."  It just makes sense, and better safe than sorry.

[401 Chaos]

Thanks.  Again, I don't disagree that an amendment may be the most "appropriate" approach or that the guidance does not say an amendment is not required but if the IRS really expects all plans that take advantage of this expanded relief to have formal plan amendments the announcement should have made clear that all plans desiring to take advantage of the expanded relief are required to adopt conforming amendments.  I don't think it does that 

Specifically, the Announcement provides that "To make a loan or hardship distribution pursuant to the relief provided in this announcement, a qualified employer plan that does not provide for them must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2017."  Since no plan can have previously been drafted to provide for hardship distributions in accordance with 2017-11, why wouldn't the announcement have omitted the "that does not provide for them" phrase if the IRS's intent was for all plans taking advantage of the relief to adopt amendments?

Doubt we will resolve this here of course.  Just looking at the current weather forecast, I'd also suggest that it might be more efficient for all involved if the IRS could come up with some form of blanket relief in these cases rather than going storm by storm.