The Bipartisan Budget Act of 2018 has made some significant changes to the rules pertaining to hardship distributions in employer-sponsored retirement plans. The most significant changes are the elimination of the requirement that participants exhaust all available plan loans prior to receiving a hardship distribution and the elimination of the six month deferral suspension requirement upon receiving a hardship distribution.
Prior to the Act, participants electing hardship distributions were required to take all available plan loans before they were eligible to receive a hardship distribution. The Act removes this requirement allowing participants to take hardship distributions without having to take out a plan loan.
Prior to the Act, after receiving a hardship distribution participants were required to suspend their elective deferral contributions for six months. The Act removes this requirement allowing participants to continue their 401(k) contributions to the plan even if they take a hardship distribution.
The Act also expanded the sources eligible to be withdrawn for hardship purposes. Newly eligible sources include Qualified Nonelective Contributions (QNECs), Qualified Matching Contributions (QMACs) and earnings attributed to employee deferral contributions.
Plans that permit hardship distributions will likely need to be amended to reflect the changes. If you have any questions about how or if this rule will affect your plan, please contact Nicole Brown or Cole Hegstad of SDK’s employee benefits department.