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Hardship Distributions

Proposed Regulations Affecting Hardship Distributions

On November 14, 2018, the Internal Revenue Service published proposed regulations in response to the changes mandated by the Bipartisan Budget Act of 2018 and the 2018 Tax Cuts and Jobs Act affecting hardship distribution guidelines in qualified plans. These proposed regulations may be followed now but the IRS has also opened a question period in which we expect to gain more insight. In the meantime, Document Agility is currently reviewing the changes and the affect they will have on each of its documents across all platforms. We expect to have an interim good-faith amendment available in early 2019.

Good-Faith Amendment

The amendment to our volume submitter and prototype plans will include both a mass submitter sponsor-level amendment to be provided to all adopters and an employer-level amendment for clients utilizing the hardship withdrawal provisions. A summary of material modifications will be provided along with revised administrative policy documents. An outline of all the changes made will be provided at the time the revised documentation is provided to you.

Effective Date

The proposed regulations are generally effective for plan years beginning on or after January 1, 2020. However, Employers who wish to adopt the revised hardship guidelines in 2019 will need to amend their plans accordingly. Those amendments include:

  • Elimination of the six-month suspension period for hardship distributions that use the safe harbor determination. Such elimination may be applied in 2019 for any new hardship distribution request and may also be applied to any distribution made in 2018 where the six-month suspension was mandatory. The suspension period is permanently removed for any hardship made in 2020.

  • Elimination of loan requirement before any hardship distribution is made.

  • Making available for hardship, amounts that were formerly restricted contribution sources. The proposed language allows QMACs and QNECs (with interest regardless of when earned) to be withdrawn along with elective deferrals and safe harbor contributions from 401(k) Plans. (Note: pre-tax deferrals in a 403(b) plan continue to be restricted as under existing rules but QNECs and QMACs in a non-custodial account could be withdrawn.) An employer will retain the right, however, to restrict the overall availability of any contribution source.

  • Elimination of facts and circumstances test. This has been replaced with a three-part standard test which will be mandatory in 2020 but optional in 2019.

We will provide further information and details when the amendment is available. Thanks for your patience. If you have any questions, please do not hesitate to contact us at 877-346-5994 or

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