Recently, the Internal Revenue Service (IRS) issued final regulations on 401(k) hardship withdrawals, relaxing current restrictions and easing the process for plan participants. Set to go into effect Jan. 1, 2020, some of the changes stemming from the regulation are mandatory, while others are voluntary. Check out the key provisions below:

• Plans will no longer be able to prevent participants from making contributions following a hardship withdrawal.
• Participants no longer are required to first take a plan loan before making a hardship withdrawal. It is now at the discretion of the plan sponsor.
• Plan earnings and other types of elective and nonelective contributions will be eligible for withdrawal.
• The hardship verification process will only require sponsors to confirm the distribution is the minimum amount necessary to meet the participant’s financial needs and there is no reason to believe the employee has the financial need.
• Expands safe-harbor rules to include categories covering expenses and losses incurred from a FEMA-declared disaster.

Implementing Amendments

If your 401(k) plan permits hardship distributions, operational changes will need to be updated by Jan. 1, 2020. Many changes, such as the expansion of sources of hardship distributions, can be operationally effective as early as the first day of the 2019 plan year. Your required plan document amendment dates will vary depending on the type of plan, current documentation and when changes are placed into operation. Should you need assistance interpreting how these rules specifically impact your plan or executing the changes, we can connect you with benefit plan advisors from our affiliate firm Doeren Mayhew. Contact us today.

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