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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: An unforeseeable emergency distribution can be made to a participant of an IRC Sec. 457 or Sec. 409A deferred compensation plan as long as the unforeseen emergency arose as a result from events beyond the control of the participant, says the Internal Revenue Service in Rev. Rul. 2010-27, IRB 2010-45, 620.
The facts involve a Sec. 457 plan that contained provisions governing unforeseeable emergency distributions that were substantially similar to provisions in Reg. Sec. 1.457-6(c)(2)(i) and Sec. 5.10 of the model amendment contained in the appendix to Rev. Proc. 2004-56, CB 2004-2, 376. Specifically, an unforeseeable emergency is defined in the plan as a severe financial hardship of the participant resulting from any of the following developments:
An unforeseeable emergency is not the purchase of a home or payment of college tuition, the IRS noted. However, the distribution can include amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution.
The participant must provide documentation to substantiate the facts and circumstances surrounding the need for the emergency distribution.
Three Situations Addressed
The three fact situations addressed in Rev. Rul. 2010-27 do not fit within any of the examples used in Reg. Sec. 1.457-6(c)(2)(i) nor those used by the plan.
In the first situation, an emergency distribution was requested to repair the participant’s principal residence because of significant water damage that is not covered by insurance but is substantially similar to the need to pay for damage to a home as a result of a natural disaster. This is a permissible emergency distribution because it is the result of events beyond the control of the participant, the IRS said.
In the second situation, an emergency distribution was requested to pay for the funeral expenses of an adult son who is not a dependent. The IRS stated that was a permissible emergency distribution because “the need to pay for the funeral expenses of a non-dependent adult son is an extraordinary and unforeseeable circumstance that arises as a result of events beyond the control of the participant and that is substantially similar to the need to pay for funeral expenses of a dependent.”
The facts in the third situation involve a participant who requests an emergency distribution to pay for accumulated credit card debt. This is not a permissible emergency distribution the IRS said because it not arise “due to any events that are extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.”
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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