The U.S. Department of Labor's Employee Benefits Security Administration (EBSA)
and the Internal Revenue Service (IRS) have published guidance for employers
relating to changes in the law that increase the amount of loan distributions
permitted through 401(k) and similar employer-sponsored plans to participants
affected by Hurricane Katrina.
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Download NowUnder the Katrina Emergency Tax Relief Act of 2005 (KETRA), participants adversely
affected by the hurricane receive special tax treatment for certain qualified
plan distributions. The act also increases the limits on the amounts of plan
loans that may be made to participants affected by the hurricane. The new law
covers eligible distributions made between August 25, 2005 and January 1, 2007.
The agencies are issuing guidance for employers and individuals relating to
the application of the distribution and loan provisions of KETRA.
As stated in IRS Notice 2005-92, the Department of Labor won't treat any person
as having violated the provisions of Title I of the Employee Retirement Income
Security Act, including the requirements that plan loans be available on a reasonably
equivalent basis and be adequately secured, solely because they made a plan
loan to a qualified individual in compliance with the provisions of KETRA. IRS
Notice 2005-92 explains the circumstances under which distributions and loans
can be made from a plan to participants and beneficiaries affected by the hurricane.
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