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ALERT: Changes to the Hardship Distributions Rules effective January 1, 2020

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Making hardship withdrawals from retirement plans (401(k) and 403(b) will soon be easier for plan participants, and so will starting to save again following a hardship withdrawal.

Lifesaver

Elimination of 6-Month Suspension. Beginning January 1, 2020, plans may no longer impose a 6-month suspension on participants who take hardship distributions. In lieu of the 6-month suspension, effective as of January 1, 2020, plans must require participants to sign (or electronically execute) a statement certifying that they have no other cash or liquid assets reasonably available from which they can satisfy the hardship. The plan administrator may rely on this certification unless it knows it to be inaccurate. Although elimination of the 6-month suspension is not required until January 1, 2020, plan sponsors could choose to eliminate it as early as January 1, 2019. Suspensions may be eliminated during 2019 without participant certifications. Plan sponsors are also free to lift any hardship suspensions that were previously in place.

Requirement to Take Loans Before Hardship Distributions Permitted But Not Required. The regulations provide that a plan may require a participant to take all available loans before a hardship distribution, but it is no longer mandatory. As is the case under the current regulations, the participant still must have taken all other distributions currently available from all other qualified and nonqualified plans.

Amounts Eligible for Withdrawal. Plans may allow hardship distributions of all earnings on elective contributions. Previously, only earnings on elective contributions accrued before 1989 were eligible for hardship distribution. Plans may also allow hardship distributions from safe harbor contributions and qualified nonelective contributions ("QNECs") and qualified matching contributions ("QMACs").

Timing and Form of Changes. Most of the changes made by the regulations are optional. However, plans are required to operationally eliminate the 6-month suspension and begin requiring the new participant certification no later than January 1, 2020. This deadline applies even if the plan year does not coincide with the calendar year.

Contact us if you have questions about the changes to the Hardship Distributions Rules. We can help!