Effective January this year (2019) the regulations surrounding hardship withdrawals from retirement plans changed. These updates impact the participants of the Plans allowing the withdrawal option, as well as the Plan Sponsors maintaining contributions for their Plans. While these updates were widely published by the IRS, we wanted to breakdown the information for our clients to ensure they are up to speed.
The causality loss provision (a provision that outlines the hardship election for expenses/repairs to an employee’s principal residence) was changed back to its original definition. The provision now states that existing damages do not need to meet the requirement of the Federal Disaster declaration.
There is no longer a six month deferral suspension following the hardship withdrawal from a Plan. Participants will be able to continue to contribute to the Plan immediately following the distribution.
The hardship requirements no longer mandate that the loan option (if allowed by the Plan) be exhausted prior to a hardship distribution.
Plan Sponsors are now able to permit additional contribution sources for hardship withdrawals by completing an amendment to the plan document. These sources are in additional to the Employee Deferral source previously allowed by the regulation. It is important to note that a technical legislative or regulatory correction is required in order to permit 403(b) plans to allow for these additional contribution sources.
To learn more about the 2019 updates to hardship regulations and to see how this impacts your Plan, contact us directly at 877-484-4400 or via email at firstname.lastname@example.org.