IRS Issues New Hardship Guidelines for 401(k) and 403(b) Retirement Plans

The proposed guidelines would make qualifications for hardship withdrawals less restrictive

An article in Employee Benefits & Compensation Blog by Paul M. Hamburger, Steven Einhorn and Jennifer Rigterink summarizes the just released IRS and Treasury “proposed regulations regarding hardship distributions under section 401(K) and 403(b) plans.” The proposed regulations clarify “issues raised by the Bipartisan Budget Act of 2018…the 2018 Tax Cuts and Jobs Act…and recent disaster relief guidance.”

Plan sponsors, according to the authors, will need to revise the provisions of their plans to comply with the new rules.

The current regulations prohibit “a participant who takes a hardship distribution” from “making future contributions to the plan and other employer-sponsored plans for six months.” Congress now requires that this requirement, which keeps participants from “replenishing their accounts after a hardship distribution,” be made less restrictive.

There are somewhat complicated provisions for when and how this, and the other proposed changes, go into effect.

At the present time, a hardship distribution cannot be taken until a participant takes advantage of “all plan loans otherwise available.”  This requirement will no longer be in effect starting in 2019.

The current rules defining what events qualify as ‘hardship events” have been expanded to include not only events that have occurred during “federally–declared disasters” but also losses that occur after the disaster and losses absorbed by beneficiaries of deceased employees who participated in a plan.

“Consistent with the Budget Act, the Proposed Regulations expand the sources available for hardship distributions to include earnings on elective deferrals, QNECs, QMACs, and earnings on QNECs and QMACs.”

Once the new Regulations are in effect, plan administrators can “rely on the representations” of participants when making distributions.

The authors urge employers to meet with their attorneys and insurance professionals to discuss plan changes before the Proposed Regulations go into effect.


Treasury and IRS Issue Eagerly-Awaited Guidance on Hardship Distributions—with a Few Surprises, Paul M. Hamburger, Steven Einhorn and Jennifer Rigterink, Employee Benefits & Executive Compensation Blog, November 12, 2018.
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