The IRS, on December 17, 2010, issued Revenue Ruling 2010-17, which sets forth examples of certain expenses that may be eligible for an unforeseeable emergency distribution from an IRC Section 457(b) deferred compensation plan. Section 457(b) plans generally may permit hardship distributions for unforeseeable emergencies if certain requirements are met. The ruling concludes that residential flood damage and funeral expenses of a non-dependent child may be unforeseeable emergencies arising from events beyond the participant’s control. The ruling makes clear, however, that accumulated credit card debt is not eligible for an unforeseeable emergency distribution.

Section 457(b) plans that so provide, may offer distributions to a participant based on an unforeseeable emergency for:

(i) an illness or accident of the participant, the participant’s beneficiary, or the participant’s or beneficiary’s spouse or dependents;

(ii) property loss caused by casualty (e.g., damage from a natural disaster not covered by homeowner’s insurance) of the participant or beneficiary;

(iii) funeral expenses of the participant’s spouse or dependent; and

(iv) other similar extraordinary and unforeseeable circumstances resulting from events beyond the control of the participant or beneficiary (such as imminent foreclosure or eviction from a primary residence, or to pay for medical expenses or prescription drugs).

The participant must show that the emergency expenses could not otherwise be covered by insurance, liquidation of the participant’s assets or ceasing deferrals under the plan.
The ruling lists three examples of participant requests for emergency distributions:

(i) to repair significant water damage to the participant’s principal residence not covered by insurance (permitted),

(ii) to pay funeral expenses of the participant’s non-dependent adult child (permitted), and

(iii) to pay credit card debt (not permitted).

The examples and related rules cited in the ruling also apply to emergency distributions from a nonqualified deferred compensation plan subject to Code Section409A.

For additional information on the effect of this ruling, please contact Michael G. Kushner (914)-514-6139 ( or your regular contact within the Kackson Lewis Pensions & Benefits Practice.