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December 02, 2005
Agencies Offer Guidance on 401(k) Loans for Katrina Victims

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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Under 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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