The Bipartisan Budget Act of 2018 is a federal law regarding the US spending and budget that was signed into law by the President on February 9, 2018.
Impacts on Hardship Distributions from Defined Contribution Plans
For plan years beginning January 1, 2019, the Bipartisan Budget Act of 2018:
- Eliminates the 6-month suspension requirement after a hardship.
- Eliminates the requirement that a participant obtain a plan loan to qualify for a hardship.
- Expansion of sources available for a hardship can include earnings on elective deferrals, as well as amounts attributable to Qualified Nonelective Contributions (QNECs) and Qualified Match Contributions (QMACs). This expansion also includes ADP test safe harbor contributions. However, it does not appear to include Qualified Automatic Contribution Arrangement (QACA) safe harbor contributions.
Although the above changes seem relatively easy to implement, questions have been raised; including how the above will affect recordkeeping, transition rules, plan amendments, and employee/employer communications. We are waiting for additional guidance from the IRS regarding these questions.
Once IRS guidance has been received and the amendment is available, we will contact our clients that utilize the WR Volume Submitter Adoption Agreement to further explain the amendment process.
Qualified plans that provide for a hardship provision will need to be amended by the last day of the plan year beginning on or after January 1, 2019 (e.g., adopt the amendment by December 31, 2019 for a calendar year plan).
Additionally, IRS just released new safe harbor special tax notices applicable to all retirement plans to use with distribution packages. There are separate notices for Roth and non-Roth distributions. All special tax notices should be updated to reflect the latest changes made by IRS. A sample of each Notice is attached.