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Hardship Withdrawals Rules Less Restrictive

May 16, 2018


The Bipartisan Budget Act of 2018 (the Act) was signed into law by President Trump on February 9, 2018. Through the Act, the U.S. Congress enacted certain changes to the rules for hardship withdrawals for defined contribution plans. For plans continuing to offer hardship withdrawals, or for those considering offering them, management should review their plan documents and consult their ERISA counsel to ensure proper implementation.

Changes in the Act that are effective for plan years beginning after December 31, 2018 include the following:

• IRS regulations are to be changed to remove the requirement that employees are suspended from contributing to all plans maintained by an employer for six months after a hardship withdrawal.
• The Internal Revenue Code (IRC) is amended to allow hardship withdrawals to be taken from expanded categories of employer and employee contributions and related earnings.
• The IRC is amended to provide that participants may take hardship withdrawals without necessarily having to request a participant loan.

Prior to the rules transition, employers should be careful to operate their retirement plans in conformity with their existing plan documents and adoption agreements and in compliance with the current IRC and regulations. Certain provisions of the Act appear to need additional clarification from the IRS. Thus, employers should work in tandem with their retirement plan companies and ERISA counsel to evaluate how to properly amend plan documents and adoption agreements to comply with the pending changes in the IRC and IRS regulations. Subsequent to the rules transition, plans should be operated in conformity with the related plan documents, adoption agreements, and amended IRC and IRS regulations.