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It’s Time to Revisit Your Hardship Withdrawal Provisions

Hardship withdrawal provisions are available with most 401(k) and 403(b) plans however, the rules surrounding these withdrawals are changing for plans beginning on or after January 1, 2019. Plan sponsors should begin considering their options now and make decisions regarding which changes, if any, need to be implemented to allow plenty of time to develop and distribute communications to plan participants, update their procedures and amend plan documents.

What’s Changing?

The rules surrounding hardship withdrawals are becoming less stringent, which is a welcome relief to plan participants and sponsors. The new rules make more funds available to participants suffering from financial hardship. Additionally, it will now be easier to determine the amount available to a participant and there will no longer be a punishment for an employee who requests a hardship withdrawal. The following provisions have been added and/or changed:

  • Expands the available retirement funds for hardship to include:
    • Qualified Non-Elective Contributions
    • Qualified Matching Contributions
    • Safe Harbor Contributions
    • Accumulated Investment Earnings
  • 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.

Planning for Compliance

Plan documents are required to be updated to incorporate the new provisions by January 1, 2019. Since the formal IRS guidance has not been released, we have provided some ideas for best practices to get your plan documents updated prior to formal guidance being released. These best practices include:

  • Eliminate the requirement for a participant to obtain a loan prior to requesting a hardship withdrawal.
  • Eliminate the six-month suspension for deferral contributions after a hardship withdrawal.
  • Do not allow a participant to request a hardship withdrawal of Qualified Non-Elective Contributions or Qualified Matching Contributions. (Applicable to 401(k)s only).
  • 403(b) plan sponsors should wait for official guidance before expanding the sources available for hardship withdrawal.

If you have any questions regarding these changes or how they affect your plan the Retirement Plan Advisory team at The MFA Companies is ready to help, please connect with us today.

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