September 23, 2019Client Alert

IRS Finalizes Hardship Distribution Regulations

Last year, we told you about the IRS’s proposed regulations regarding statutory changes to hardship distributions from certain qualified retirement plans that were made by the Bipartisan Budget Act of 2018. (You can view that prior alert here.) Today, final regulations substantially similar to the proposed regulations were published.

If your company already adopted plan amendments to comply with the proposed regulations, new plan amendments likely will not be necessary. If, however, you have not implemented a plan amendment, you must do so to reflect the final regulations. The amendment must be effective for hardship distributions beginning no later than January 1, 2020.

For individually designed plans, the deadline for adopting an amendment is the end of the second calendar year that begins after issuance of the Required Amendments List (RAL) that includes the change. So, if the final regulations are included in the 2019 RAL, the deadline will be December 31, 2021. For pre-approved 401(k) plans, the deadline for amendments will be the interim amendment deadline for required changes. For example, changes effective on or after January 1, 2020 would be required by the tax-filing deadline, plus extensions, for 2020. For pre-approved 403(b) plans, the amendment deadline is March 31, 2020. Note, however, the final regulations indicate the Treasury Department and IRS are considering providing a later amendment deadline for amendments relating to the final regulations in separate guidance. Stay tuned.

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