• Update Availability
  • Contact
  • Login
  • español
  • Login
  • Update Availability
  • Contact
  • español
  • Why Choose QPS?
  • Divisions
  • Locations
  • About
  • Become an Employee Owner
  • The Break Room
  • Events
  • Job Seekers
  • Employers
  • Professional
QPS-ESOP-Logo_white-(1)
  • Career Assistance
  • Locations
  • About
    • Our History
    • Executives
    • Awards
    • Community Involvement
    • Affiliations
    • Press Room
    • Become an Employee Owner
    • Beliefs
    • Video Gallery
    • Mark Immekus - In Memoriam
    • Top Candidates
    • Coronavirus Action Plan
    • Referral
    • Attendance
  • The Break Room
  • Events
  • Job Seekers
    • Why Choose QPS?
    • Divisions
    • Job Seeker FAQ
    • Student Workers FAQ
    • Associate Employee Benefits
  • Employers
    • Working With QPS
    • Divisions
    • QPS Plus
    • Safety Training
    • Employer FAQ
  • Professional
  • Update Availability
  • Contact
  • Login
  • español
  • Career Assistance
  • Locations
  • About
    • Our History
    • Executives
    • Awards
    • Community Involvement
    • Affiliations
    • Press Room
    • Become an Employee Owner
    • Beliefs
    • Video Gallery
    • Mark Immekus - In Memoriam
    • Top Candidates
    • Coronavirus Action Plan
    • Referral
    • Attendance
  • The Break Room
  • Events
help desk software
  • Login
  • Update Availability
  • Contact
  • español
  • Why Choose QPS?
  • Divisions
  • Locations
  • About
  • The Break Room
  • Events
  • Job Seekers
  • Employers
  • Professional
QPS_NOW HIRING lockup_green
  • Job Seekers
    • Why Choose QPS?
    • Divisions
    • Job Seeker FAQ
    • Student Workers FAQ
    • Associate Employee Benefits
  • Employers
    • Working With QPS
    • Divisions
    • QPS Plus
    • Safety Training
    • Employer FAQ
  • Professional
job-seekers-banner-small

Looking for Work?

Apply Now

IRS Announces Changes to Retirement Plan Hardship Withdrawals

Jan 02, 2020

The IRS recently amended the rules applicable to hardship distributions from 401(k) and 403(b) plans. The new hardship distribution regulation relaxes some of the restrictions on the availability of hardship distributions and simplifies the related administrative procedures for processing such distributions beginning on January 1, 2020. 

The new regulation effectively makes getting hardship distributions easier for participants of 401(k) and 403(b) retirement plans by loosening restrictions that previously may have prevented such distributions. In order to comply with the new regulation, plan sponsors will need to carefully review their current 401(k) and 403(b) plans and related documents, as well as administrative forms, and to amend them where applicable.The regulation changes the rules in several important ways:

  • Elimination of Six Month Suspension of Elective Deferrals - For hardship distributions occurring on or after January 1, 2020, the old rule requiring recipients of hardship distributions to suspend elective deferrals for the six months following the distribution has been eliminated and inclusion of a mandatory suspension provision is now prohibited.While this rule is mandatory for hardship distributions beginning in 2020, plan sponsors are permitted to discontinue the deferral suspension requirement in 2019 as well.
  • Plan Loan Suspension Now Optional - Plans are no longer obligated to require participants to first utilize all available plan loans prior to receiving a hardship distribution, but a plan is permitted to retain this requirement.
  • Expanded Sources of Hardship Distributions - Hardship distributions were previously limited to elective deferrals only, without earnings. Hardship distributions from a 401(k) plan may now also include earnings related to elective deferrals, and QNECs and QMACs and related earnings.However, this expansion does not apply fully to 403(b) plans. Specifically, distributions of earnings are never permitted and distributions attributable to QNECs and QMACs are only allowed if the 403(b) funds are held in a “non-custodial account”.
  • Disaster Area Limitation on Casualty Loss Hardship Distributions Eliminated - The availability of the existing safe harbor hardship category for casualty losses was thrown into confusion by an amendment to Section 165 of the Internal Revenue Code (IRC) made by the Tax Cuts and Jobs Act of 2017 (TCJA), which (for the years 2018 through 2025) limits casualty loss deductions to those occurring in federally declared disaster areas. Because the casualty loss description in the existing regulations referred to IRC 165, the TCJA change effectively restricted the casualty loss safe harbor to losses occurring in federal disaster areas. The new regulation revised the casualty loss safe harbor to remove the reference to federally declared disaster areas for hardship distributions on or after January 1, 2020.The change may be implemented retroactively, so it can provide relief for plan administrators that did not impose the federal disaster area limitation on hardship distributions for casualty losses in 2018 or 2019.
  • New Deemed Hardship Distribution for Disaster Areas - The new regulation provides that distributions to pay expenses and losses (including loss of income) to a participant whose primary residence or place of employment is in an area designated as a disaster area by the Federal Emergency Management Agency (FEMA) will be deemed to be for an “immediate and heavy financial need” if the distribution is for assistance with respect to the FEMA-designated disaster. This amendment is intended to facilitate quick access to plan funds following a federally declared disaster.
  • Replacement of the General “Facts and Circumstances” Test - Previously, the plan administrator was required to consider “all relevant facts and circumstances” to determine if a hardship distribution was “necessary.”The regulation now provides a simplified standard determine whether a distribution is “necessary” to satisfy an immediate and financial need of a participant.Under this new standard, a hardship distribution may be made if the following three requirements are met:
  1. The distribution does not exceed the amount of the participant’s need (including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution);
  2. The participant first obtains all other currently available non-hardship distributions, such as ESOP dividends or deferred compensation payments (but not participant loans) under the plan and all other qualified or nonqualified deferred compensation plans maintained by the employer; and
  3. The participant must provide an acceptable representation that he or she has insufficient cash or liquid assets “reasonably available” to satisfy the financial need.

Plans will have to be amended to reflect the hardship distribution rules under the new regulations, which are applicable to hardship distributions made on or after January 1, 2020 (although plans are permitted to implement the new rules for distributions beginning in 2019). The deadlines for amendment vary depending on the type of plan maintained by the employer:

  • For non-governmental, individually designed 401(k) plans, the deadline to adopt an amendment for any of these required or optional changes is the end of the second calendar year that begins after the issuance of the Required Amendment List that includes these changes. For example, if the hardship regulations are included in the 2019 Required Amendment List, the amendment must be adopted by December 31, 2021.
  • Pre-approved 401(k) plans (such as prototype or volume submitter plans) will have to be amended to incorporate the new rules in the next applicable period for the amendment of such plans and approval by IRS. Adopters of pre-approved plans also must adopt interim amendments implementing the changes.The interim amendment deadline is the later of (a) the last day of the plan year ending after January 1, 2020; or (b) the filing deadline (including extensions) for the tax year of the employer in which the January 1, 2020 effective date falls.For example, if both the plan year and the employer’s tax year are the calendar year, the interim amendments must be adopted by the tax return filing deadline (including extensions) for the 2020 tax year.The preamble to the new regulation states that even if the plan implemented the new rules in operation for 2019, the required effective date of January 1, 2020 will dictate the amendment deadline.
  • For 403(b) plans, the current remedial amendment period is applicable, such that any amendments reflecting the changes in the final regulations are due by March 31, 2020. However, we understand that further guidance extending this deadline is being considered.

In order to ensure compliance with the regulation, plan sponsors should:

  • Review hardship distribution procedures and related participant forms and make any necessary changes to conform to the new rules. For example, if the instructions for a hardship distribution request state that a participant must suspend elective deferrals for six months, that provision must be eliminated.
  • In the majority of cases, employers using a third-party administrator (TPA) should contact the TPA, which usually provides the plan’s administrative forms, to make sure the TPA is implementing the appropriate changes to comply with the new rules.
  • Timely adopt amendments to reflect both the required changes and any optional changes that were or will be implemented for the plan. Those employers using a pre-approved plan document should check with the TPA (or other document provider) to confirm that the necessary amendments (including interim amendments) are being prepared to implement the new rules, as well as any optional provisions that the employer wants to adopt.
  • For employers maintaining safe harbor 401(k) plans, the safe harbor notice must be updated to reflect the hardship distribution changes. If these forms are provided by the TPA, the safe harbor notice may already have been updated, but if not, a corrected notice should be given.

Source: JD Supra

Leave a comment Newest on top Oldest on top
Load more comments
avatar
New code

Search Posts

Filter Posts

Job Seekers

  • Using social media in your job search
  • Complete Guide to Mastering the Virtual Interview
  • How to Find a Job in a New City
  • Multitasking at Work
  • How to Ask for a Raise
  • How to Boost Your Productivity
  • How to Handle a Counter Offer
  • Making a gig work
  • How to Leave Your Current Role Without Burning Bridges
  • 4 Ways to Create Your Own Career Success
  • How to Discuss Your Previous Experience in a Job Interview
  • How to Answer Tough Interview Questions
  • Benefits of a side gig
  • National Skilled Trades Day
  • The Benefits of Job Research & Where to Start
  • Going from a passive to active job search
  • Energy Boosting Meals for Work Week Productivity
  • 3 Reasons You Shouldn’t Cancel a Job Interview
  • Reconnecting with your network
  • 4 Ways You’re Scaring Recruiters Away

Employers

  • December’s Job Report: Rate Drops to 3.5%
  • November’s Job Report: Rate Remains at 3.7%
  • October’s Job Report: Rate Increases to 3.7%
  • September’s Job Report: Rate Drops to 3.5%
  • August’s Job Report: Rate Increases to 3.7%
  • July’s Job Report: Rate Declines to 3.5%
  • June’s Job Report: Rate Remains at 3.6%
  • May’s Job Report: Rate Remains at 3.6%
  • April’s Job Report: Rate Remains at 3.6%
  • March’s Job Report: Rate Declines to 3.6%
  • February's Job Report: Rate Drops to 3.8%
  • January's Job Report: Rate Rises to 4.0%
  • December's Job Report: Rate Decreases to 3.9%
  • November's Job Report: Rate Drops to 4.2%
  • October's Job Report: Rate Drops to 4.6%
  • The Demographic Drought
  • September's Job Report: Rate Drops to 4.8%
  • August's Job Report: Rate Drops to 5.2%
  • July's Job Report: Rate Drops to 5.4%
  • June's Job Report: Rate Rises to 5.9%

Archive

  • 2023 January
  • 2022 December
  • 2022 November
  • 2022 October
  • 2022 September
  • 2022 August
  • 2022 July
  • 2022 June
  • 2022 May
  • 2022 April
  • 2022 March
  • 2022 February
  • 2022 January
  • 2021 December
  • 2021 November
  • 2021 October
  • 2021 September
  • 2021 August
  • 2021 July
  • 2021 June
  • 2021 May
  • 2021 April
  • 2021 March
  • 2021 February
  • 2021 January
  • 2020 December
  • 2020 November
  • 2020 October
  • 2020 September
  • 2020 August
  • 2020 July
  • 2020 June
  • 2020 May
  • 2020 April
  • 2020 March
  • 2020 February
  • 2020 January
  • 2019 December
  • 2019 November
  • 2019 October
  • 2019 September
  • 2019 August
  • 2019 July
  • 2019 June
  • 2019 May
  • 2019 April
  • 2019 March
  • 2019 February
  • 2019 January
  • 2018 December
  • 2018 November
  • 2018 October
  • 2018 September
  • 2018 August
  • 2018 July
  • 2018 June
  • 2018 May
  • 2018 April
  • 2018 March
  • 2018 February
  • 2018 January
  • 2017 December
  • 2017 November
  • 2017 October
  • 2017 September
  • 2017 August
  • 2017 July
  • 2017 June
  • 2017 May
  • 2017 April
  • 2017 March
  • 2017 February
  • 2017 January
  • 2016 December
  • 2016 November
  • 2016 October
  • 2016 September
  • 2016 August
  • 2016 July
  • 2016 June
  • 2016 May
  • 2016 April
  • 2016 March
  • 2016 February
  • 2016 January
  • 2015 December
  • 2015 November
  • 2015 October
  • 2015 September
  • 2015 August
  • 2015 July
  • 2015 June
  • 2015 May
  • 2015 April
  • 2015 March
  • 2015 February
  • 2015 January

Contact QPS

We're Here to Help

Contact

Join Our Internal Team

We're Looking for Talent

Join

Let's Keep in Touch

  • linkedin
  • facebook
  • twitter
  • instagram
  • youtube
  • Job Seekers
  • Employers
  • Professional
  • Locations
  • About
  • español
  • Privacy
  • Terms of Use
  • Site Map
footer-logo© 2015 QPS Employment Group. All Rights Reserved