Hardship withdrawal provisions are available in most 401(k) and 403(b) plans. The rules surrounding hardship withdrawals are changing for plan years beginning on or after January 1, 2019 thanks to provisions included in the Bipartisan Budget Act of 2018 that was signed into law on February 9, 2018.
The legislation changes hardship withdrawal provisions as follows:
- Expands the available retirement funds available for hardship to include:
- Qualified Non-Elective Contributions
- Qualified Matching Contributions
- Safe Harbor Contributions
- Investment earnings that have accumulated in the account
- Eliminates the six-month suspension from making deferrals after taking a hardship
- Eliminates the requirement that a participant take a loan before requesting a hardship withdrawal
The relaxation of hardship withdrawal rules is a welcome relief to plan participants and plan sponsors.
- It will make more funds available to participants who are suffering a personal financial hardship.
- It will be easier to determine the amount available to a participant requesting a hardship
- There will not be a punishment (suspension) for an employee who requests a hardship withdrawal
- It avoids the complication of having to request a loan before requesting a hardship withdrawal. This is particularly important since, in many circumstances, loan payoff is difficult considering financial circumstances that the participant is experiencing.
Plan documents will have to be amended to incorporate these new provisions on or before January 1, 2019. At Benefit Resources we are working with our document providers to make sure that our clients will have the opportunity to take advantage of these new rules as soon as they are effective.
For participants who are under suspension for a hardship withdrawal taken in 2018, that suspension could be dropped for the first pay period following January 1, 2019 as long as the document is amended by then.
For more information on hardship withdrawals, including the rules as they are currently, please check out our Hardship Withdrawal Guide blog post.