We previously reported on certain changes made to the hardship distribution rules for qualified retirement plans by the Tax Cuts and Jobs Act. Since then, Congress has made additional and significant changes to those same hardship distribution rules by the passage of the Bipartisan Budget Act (the “BBA”). The BBA loosens various restrictions on a participant’s ability to request and receive a hardship distribution. In particular, the BBA provides:
- Effective for plan years beginning after December 31, 2018, participants may receive hardship distributions comprised of employee elective deferrals, employer contributions and earnings on both. Traditionally, hardship distributions were limited to employee elective deferrals and did not include qualified nonelective contributions, qualified matching contributions, safe harbor contributions or earnings on the same.
- Effective for plan years beginning after December 31, 2018, participants may resume contributing to the qualified plan immediately following a hardship distribution. Historically, participants were barred from making contributions for the six-month period following a hardship distribution.
- Effective for plan years beginning after December 31, 2018, participants may receive a hardship distribution without first requesting a loan from the plan. Previously, a participant was required to exhaust plan loans before becoming eligible to request a hardship distribution.
- For a limited period, victims of the California wildfires are granted hardship distribution relief similar to that extended to victims of Hurricanes Harvey, Maria and Irma. We previously reported on this relief in our blog dated September 11, 2017.
Employers may consider amending their qualified retirement plans to reflect the changes made to the hardship distribution rules by the BBA.