In the Wake of the Storm

Filing Extensions

Under IRS Notice 2005-60, certain benefit plans in the damaged area will have until Oct. 31, 2006 to make minimum funding contributions or to apply for waivers if the deadline for such actions falls between Aug. 29, 2006 and Oct. 30, 2006.

Special Rules for Loans and Hardship Distributions

Under IRS Notice 2005-70, a tax-qualified plan will not be disqualified for making a loan or a hardship distribution for a need arising from Hurricane Katrina, to an employee or former employee who was employed or resided in a federally designated disaster area. In addition, 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. If a plan does not provide for loans or hardship distributions, the plan must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after Dec. 31, 2005. To qualify for relief, the hardship distribution resulting from Hurricane Katrina must have been made on or after Aug. 29, 2005, and no later than March 31, 2006. Also, for the period Aug. 29, 2005 through March 31, 2006, a plan will be relieved from strict compliance with procedural requirements with respect to loans and distributions, so long as the plan administrator makes a good-faith effort under the circumstances to comply with such requirements and as soon as practicable, make a reasonable effort to assemble the forgone documentation.

No Penalty for Hurricane Katrina Victims

Under recently passed legislation, the 10% penalty for premature distributions from IRAs and qualified retirement plans was waived for individuals whose principal place of residence is in a federally declared natural disaster area. Individuals who are eligible for this waiver are permitted to pay income tax on a distribution ratably over a three-year period. Any such amounts distributed can be re-contributed to a qualified retirement plan over the 3-year period following the distribution date and receive rollover treatment Each benefit is limited to $100,000 per individual. Limitations on loans from qualified employer plans increased for the victims by doubling the thresholds to the lesser of $100,000 (rather than $50,000) or 100% (rather than 50%) of the individual's account balance. Moreover, amounts due on Katrina loans after Aug. 29, 2005 and before Aug. 30, 2006, could be deferred, and 12 months could be added to the maximum repayment period of affected loans.

Employers Can Hire Victims Lacking I-9 Documentation

The Department of Homeland Security has announced it will not sanction employers hiring victims of Hurricane Katrina who are currently unable to provide the required I-9 documents but are otherwise eligible for employment. U.S. employers are required to complete Employment Eligibility Verification Forms (I-9) for every employee they hire. This exemption began on Sept. 6, 2005 and continued for 45 days. After the 45-day period, the Department was set to review this policy and make further recommendations. Addition-ally, on Sept. 21, 2005, the House of Representatives approved a bill that would allow employers to hire Hurricane Katrina victims without initially checking their work authorization documents. This bill would require employers to review their new hires' replacement documents within 90 days after the worker has received them.

New Federal Contractors Temporarily Exempt

On Sept. 9, 2005, the Department of Labor (DOL) announced that any new company receiving Katrina-related federal contracts after Sept. 8, 2005, would not be required to comply with certain affirmative action program requirements. The DOL's Office of Federal Contract Compli-ance Programs (OFCCP) enforces Executive Order 11246, which generally requires federal contracting parties having 50 or more employees and $50,000 in federal contracts to include an equal employment opportunity clause in the contract including preparation of a written affirmative action plan. The 3-month exemption applies only to the preparation of a written affirmative action plan, and only to new Katrina-related federal contractors and subcontractors and not companies that have existing contracts with the federal government. However, employers are not exempt from the nondiscrimination provisions of the laws administered by the OFCCP or other substantive obligations.

Federal Contractors Exempt from Davis-Bacon Act

President Bush has suspended application of the Davis-Bacon Act, which governs workers' pay on federal contracts, on federal reconstruction projects in the areas damaged by Hurricane Katrina including parts of Alabama, Florida, Louisiana, and Mississippi. The Davis-Bacon Act generally requires federal contractors to pay the prevailing local wage on all projects in excess of $2000. The suspension is to last until otherwise provided.

DOL and IRS Extend Deadlines

The DOL and the IRS are allowing for additional time to comply with certain deadlines in the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA), and various rules for processing health related claims. With respect to any plan participant, beneficiary, qualified beneficiary or claimant “directly affected” by Hurricane Katrina, benefit plans and health insurance issuers must disregard the period from Aug. 29, 2005 through January 3, 2006 when determining any of the following time periods and dates:

• The 63-day break in coverage period under the HIPAA portability provisions;
• The 30-day period to request special enrollment rights under HIPAA;
• The 60-day period within which to elect COBRA continuation coverage;
• The date for making COBRA premium payments;
• The date for individuals to notify the plan of a qualifying event or determination of disability under COBRA; and
• The date within which a claimant may file a benefit claim or file an appeal of a benefit determination under the plan's claim procedure.

Unions in Affected Areas

Unions based in regions affected by Hurricane Katrina have received an extension on filing LM-2, LM-3, and LM-4 disclosure forms with the DOL. The forms are required by the Labor-Management Reporting and Disclosure Act and detail unions' receipts and expenditures. Unions in certain counties in Alabama, Florida, Louisiana, and Mississippi that were supposed to file the disclosure forms on or after Aug. 29, 2005 have extra time to complete and file the forms. No enforcement action will be taken until March 31, 2006.

Temporary Measure Allows DOL Funds

On Sept. 23, 2005, the President signed into law a bill that allows emergency grant funds from the DOL to be used to provide temporary disaster relief employment to workers affected by Hurricane Katrina. The bill also allows the DOL's emergency grant funds to be used for jobs in the public sector that are not directly related to the disaster. These jobs would be limited to six months, but the bill gives the Secretary of Labor the authority to extend the time period to twelve months under certain conditions. States outside the disaster area would be permitted, with the labor secretary's approval, to seek grants from the DOL to assist hurricane evacuees in finding jobs.

DOL Extends Disaster Unemployment Assistance of Hurricane Katrina

The DOL had extended the time permitted for persons rendered jobless by Hurricane Katrina to file for Disaster Unemployment Assistance (DUA) until Nov. 30, 2005. In addition, the DOL extended the time for the paperwork requirements needed for an initial DUA application to 90 days. DUA provides financial assistance to persons whose employment has been lost or interrupted as a direct result of a major disaster declared by the President. Before an individual can be eligible for DUA, it must be established that the person is not eligible for regular unemployment insurance under state or federal law.

As everyone knows, Hurricane Katrina devastated the residents and businesses of the Gulf Coast, causing massive damage and loss in Louisiana, Mississippi, Alabama and elsewhere. The sheer expenditure of time and resources in rebuilding the region will no doubt be enormous. In recognition of the magnitude of the disaster and the likelihood of a long and costly recovery, the federal government has taken both legislative and regulatory action in response. Many of these government actions have direct impact on employment practices:

Employers Can Assist Employees in Donating

Under IRS Notice 2005-68, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief services to the victims of Hurricane Katrina if made before Jan. 1, 2007. However, such cash payments are not considered gross income or wages of the employee, nor may the employee claim a charitable contribution deduction for the donation amount. Employers will be allowed to deduct the amount of the cash payment as a business deduction.

Filing Extensions

Under IRS Notice 2005-60, certain benefit plans in the damaged area will have until Oct. 31, 2006 to make minimum funding contributions or to apply for waivers if the deadline for such actions falls between Aug. 29, 2006 and Oct. 30, 2006.

Special Rules for Loans and Hardship Distributions

Under IRS Notice 2005-70, a tax-qualified plan will not be disqualified for making a loan or a hardship distribution for a need arising from Hurricane Katrina, to an employee or former employee who was employed or resided in a federally designated disaster area. In addition, 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. If a plan does not provide for loans or hardship distributions, the plan must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after Dec. 31, 2005. To qualify for relief, the hardship distribution resulting from Hurricane Katrina must have been made on or after Aug. 29, 2005, and no later than March 31, 2006. Also, for the period Aug. 29, 2005 through March 31, 2006, a plan will be relieved from strict compliance with procedural requirements with respect to loans and distributions, so long as the plan administrator makes a good-faith effort under the circumstances to comply with such requirements and as soon as practicable, make a reasonable effort to assemble the forgone documentation.

No Penalty for Hurricane Katrina Victims

Under recently passed legislation, the 10% penalty for premature distributions from IRAs and qualified retirement plans was waived for individuals whose principal place of residence is in a federally declared natural disaster area. Individuals who are eligible for this waiver are permitted to pay income tax on a distribution ratably over a three-year period. Any such amounts distributed can be re-contributed to a qualified retirement plan over the 3-year period following the distribution date and receive rollover treatment Each benefit is limited to $100,000 per individual. Limitations on loans from qualified employer plans increased for the victims by doubling the thresholds to the lesser of $100,000 (rather than $50,000) or 100% (rather than 50%) of the individual's account balance. Moreover, amounts due on Katrina loans after Aug. 29, 2005 and before Aug. 30, 2006, could be deferred, and 12 months could be added to the maximum repayment period of affected loans.

Employers Can Hire Victims Lacking I-9 Documentation

The Department of Homeland Security has announced it will not sanction employers hiring victims of Hurricane Katrina who are currently unable to provide the required I-9 documents but are otherwise eligible for employment. U.S. employers are required to complete Employment Eligibility Verification Forms (I-9) for every employee they hire. This exemption began on Sept. 6, 2005 and continued for 45 days. After the 45-day period, the Department was set to review this policy and make further recommendations. Addition-ally, on Sept. 21, 2005, the House of Representatives approved a bill that would allow employers to hire Hurricane Katrina victims without initially checking their work authorization documents. This bill would require employers to review their new hires' replacement documents within 90 days after the worker has received them.

New Federal Contractors Temporarily Exempt

On Sept. 9, 2005, the Department of Labor (DOL) announced that any new company receiving Katrina-related federal contracts after Sept. 8, 2005, would not be required to comply with certain affirmative action program requirements. The DOL's Office of Federal Contract Compli-ance Programs (OFCCP) enforces Executive Order 11246, which generally requires federal contracting parties having 50 or more employees and $50,000 in federal contracts to include an equal employment opportunity clause in the contract including preparation of a written affirmative action plan. The 3-month exemption applies only to the preparation of a written affirmative action plan, and only to new Katrina-related federal contractors and subcontractors and not companies that have existing contracts with the federal government. However, employers are not exempt from the nondiscrimination provisions of the laws administered by the OFCCP or other substantive obligations.

Federal Contractors Exempt from Davis-Bacon Act

President Bush has suspended application of the Davis-Bacon Act, which governs workers' pay on federal contracts, on federal reconstruction projects in the areas damaged by Hurricane Katrina including parts of Alabama, Florida, Louisiana, and Mississippi. The Davis-Bacon Act generally requires federal contractors to pay the prevailing local wage on all projects in excess of $2000. The suspension is to last until otherwise provided.

DOL and IRS Extend Deadlines

The DOL and the IRS are allowing for additional time to comply with certain deadlines in the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA), and various rules for processing health related claims. With respect to any plan participant, beneficiary, qualified beneficiary or claimant “directly affected” by Hurricane Katrina, benefit plans and health insurance issuers must disregard the period from Aug. 29, 2005 through January 3, 2006 when determining any of the following time periods and dates:

• The 63-day break in coverage period under the HIPAA portability provisions;
• The 30-day period to request special enrollment rights under HIPAA;
• The 60-day period within which to elect COBRA continuation coverage;
• The date for making COBRA premium payments;
• The date for individuals to notify the plan of a qualifying event or determination of disability under COBRA; and
• The date within which a claimant may file a benefit claim or file an appeal of a benefit determination under the plan's claim procedure.

Unions in Affected Areas

Unions based in regions affected by Hurricane Katrina have received an extension on filing LM-2, LM-3, and LM-4 disclosure forms with the DOL. The forms are required by the Labor-Management Reporting and Disclosure Act and detail unions' receipts and expenditures. Unions in certain counties in Alabama, Florida, Louisiana, and Mississippi that were supposed to file the disclosure forms on or after Aug. 29, 2005 have extra time to complete and file the forms. No enforcement action will be taken until March 31, 2006.

Temporary Measure Allows DOL Funds

On Sept. 23, 2005, the President signed into law a bill that allows emergency grant funds from the DOL to be used to provide temporary disaster relief employment to workers affected by Hurricane Katrina. The bill also allows the DOL's emergency grant funds to be used for jobs in the public sector that are not directly related to the disaster. These jobs would be limited to six months, but the bill gives the Secretary of Labor the authority to extend the time period to twelve months under certain conditions. States outside the disaster area would be permitted, with the labor secretary's approval, to seek grants from the DOL to assist hurricane evacuees in finding jobs.

DOL Extends Disaster Unemployment Assistance of Hurricane Katrina

The DOL had extended the time permitted for persons rendered jobless by Hurricane Katrina to file for Disaster Unemployment Assistance (DUA) until Nov. 30, 2005. In addition, the DOL extended the time for the paperwork requirements needed for an initial DUA application to 90 days. DUA provides financial assistance to persons whose employment has been lost or interrupted as a direct result of a major disaster declared by the President. Before an individual can be eligible for DUA, it must be established that the person is not eligible for regular unemployment insurance under state or federal law.