401k Hardship Distribution Changes Effective 1-1-2019

The Bipartisan Budget Act of 2018 will modify the way your 401k hardship distributions are handled after January 1, 2019. Plan Amendments will be needed to reflect these changes. CDS Administrative Services, LLC will create the appropriate amendments for your plan. Following is a list of the modifications:

  1. Elimination of 6-month suspension on contributions. Participant elective deferrals will no longer be suspended for six months after taking a hardship distribution.
  2. Elimination of requirement to obtain any available plan loans. A participant will no longer be required to obtain any plan loans available, prior to qualifying for a hardship distribution. The requirement to obtain commercially available loans appears to be continuing.
  3. New amounts available for hardship distributions. Participants may now request hardship distributions from qualified nonelective and qualified matching money types, in addition to earnings on these contributions (including earnings on elective deferrals).

Reminder – Plan sponsors are ultimately responsible for the verification of hardship requests and verification that the terms of the plan and current law are followed. However, you may rely on your CDS Administrative Services Third Party Administrator for assistance. 

Proposed Changes for 2020

IRS would make changes with respect to the “deemed need” rule, as follows:

  1. Employee must make a representation that he or she has insufficient cash or other liquid assets to satisfy their hardship need.
  2. A new deemed hardship would be added for expenses resulting from federally declared disasters, provided the participant’s principal residence or principal place of employment at the time of the disaster was located in the designated FEMA area.

Let us exceed your expectations. Contact us at (888) 388-1040 to learn more.