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Published on Aug 3
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For plan years beginning after December 31, 2018, changes made with the Bipartisan Budget Act of 2018 will ease some of the administrative burdens plan administrators and participants encounter when a hardship distribution is requested.
One of the key changes is the removal of the six-month deferral suspension. A common plan mistake occurs when an employer neglects to stop the deferrals for participants who have taken a hardship distribution. The six-month deferral suspension will help alleviate these mistakes, while also allowing plan participants to make the decision of whether they want to continue deferrals and continue growing their 401(k).
A second rule change that will benefit employees is the removal of requirements for participants to first request a loan from the plan, if the plan allow for loans, prior to requesting a hardship. This provision will be particularly helpful for those plan participants in need of a hardship withdrawal who cannot afford loan repayments. The Bipartisan Budget Act also opens up plan sources that were not previously available for hardship distributions such as QNECS, QMACS and income on elective deferrals.
Plan documents will most likely need to be amended for these changes; however, the IRS has not released any information on what date an amendment would need to be adopted by. Overall, these changes seem to be welcome relief to both the employer and the participant.
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