More importantly, the relief granted is primarily intended to expedite a participant's access to the necessary funds. The guidance did not eliminate the need for supporting documentation. It only allows plans to provide the distributions in advance of receiving such documentation.

If the plan does not contain language allowing a hardship distribution or loan and the plan takes advantage of this relief to provide loans and hardships to participants in need, the plan must be amended. The amendment must be made no later than December 31, 2013 (for calendar year plans).

In terms of supporting documentation, if spousal consent, a death certificate, or other documentation is otherwise required, the distribution and/or loan may be made without any such documentation, provided the plan administrator makes a good-faith effort to obtain it after the fact.

As you can see, the guidance is intended to provide much needed, and more importantly fast, relief to those affected by the storms on the east coast. However, it also raises questions about a plan fiduciary's obligations following the distributions and what relief, if any, is available to such fiduciary if everything doesn't go according to plan.

Note that a fiduciary is still required to put forth a good faith effort to obtain supporting documentation. In the event the documentation provided is incomplete, the fiduciary is to make a "reasonable" effort to obtain the missing information. 

What happens if they do so and they are unable to obtain complete documentation? Even worse, what if they obtain documentation and it becomes clear that the participant had not suffered any hardship whatsoever, but merely took advantage of the generosity of the plan sponsor? Or the spouse of the participant refuses to consent to a distribution after it is completed?

These raise potentially troubling questions about how a plan and its fiduciaries should handle such a scenario. Take the example of a participant who received a hardship distribution, but suffered no such hardship. The sponsor will have facilitated a distribution that should not have been made. This is a potentially disqualifying defect for the plan. What is the plan sponsor required to do at that point?

They could demand repayment, but as anyone who has ever been involved in plan administration knows, obtaining a repayment from a participant is unlikely under the best circumstances. If the participant refuses to repay the hardship, how can the plan correct this error? Is a filing under the IRS' correction program required?

Similarly, what if the spouse of a participant who received a loan refuses to consent? The spouse potentially has an action against the plan and, again, the plan has a potential disqualifying defect in processing a loan in violation of the consent rules.

It is likely, though by no means certain, that the IRS and DOL would not strictly enforce these rules, given the circumstances and the relief provided in the guidance described above. It seems likely that the government would not strictly enforce these rules so long as the sponsor did in fact engage in a good faith effort to obtain the proper documentation, and, in the event it discovered improprieties, took appropriate action to protect the plan. 

Nevertheless, the relief does raise concerns about sponsor obligations in the "worst case scenarios" raised above. Advisors and other service providers should raise these issues with plan sponsors who take advantage of the relief provided in connection with Hurricane Sandy so that sponsors can make fully informed decisions with regard to their plans.