If your company sponsors a 401(k) or 403(b) plan that allows participants to take hardship distributions, you probably had a conversation with your plan recordkeeper last year about changes to the rules on hardship distributions under those plans. Your company may even have already adopted related plan amendments or approved related plan operation changes, and that action was likely based on proposed hardship distribution regulations that the Internal Revenue Service (IRS) issued late last year (as described in this December, 2018, blog post from my colleague Belinda Morgan.
Last week, the IRS issued final 401(k)/403(b) plan hardship distribution regulations, found here. Thankfully, if your company was one of those employers that already took action based on the proposed regulations, the final regulations make only a handful of changes, so chances are that any changes you already made will still work. The following are the few noteworthy items from the final regulations:
If your company is still deciding how to implement the new hardship distribution rules under your 401(k) or 403(b) plan, here are a few key items to consider:
If your company desires to make any of these optional changes, it must adopt a plan amendment reflecting such changes by December 31 of the year in which the change is effective. We are seeing a mix of approaches among our clients – some do not want to encourage hardship distributions and others want to make them as easy as possible for participants.