Changes to 401(k) Plan Hardship Withdrawals

The Bipartisan Budget Act of 2018 has been amended to include changes to 401(k) plan hardship withdrawals, which will apply to plan years starting after December 31, 2018.

The updated rules include changes to withdrawal amounts, requirements to withdraw funds, and safe harbor regulations. JD Supra outlines the changes as follows:

1. It amends Section 401(k) of the Internal Revenue Code (“Code”) to permit the withdrawal of the following amounts, in addition to elective deferrals, in the event of hardship:

– qualified nonelective contributions (“QNECs”)
– qualified matching contributions (“QMACs”)
– safe harbor contributions (other than QACA safe harbor contributions that are subject to a vesting schedule)
– earnings on the above contributions and on elective deferrals

None of these amounts (other than pre-1989 earnings on elective deferrals) are available currently for a hardship withdrawal.

2. It amends Code Section 401(k) to provide that a participant is not required to take any available loan under the plan before taking a hardship withdrawal.

3. It directs the Secretary of the Treasury to modify the safe harbor under the regulations to (i) eliminate the 6-month suspension period for making elective deferrals (pre-tax or Roth) or employee after-tax contributions to the plan (and all other qualified and nonqualified plans of deferred compensation, as well as stock option, stock purchase or similar plans, maintained by the employer) after receipt of the hardship withdrawal, and (ii) make any other modifications necessary to carry out the purposes of the statutory hardship withdrawal provision.

Plan sponsors should begin reviewing options now to determine if changes to plan documents are necessary.

For more on these changes, please click here.

The information included in this blog post originally appeared in an article in JD Supra on July 9, 2018, written by Lisa Boehm of Verrill Dana LLP.

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