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Budget Act Makes Hardship Withdrawal Changes

Hodgson Russ Employee Benefits Newsletter
April 27, 2018

The Bipartisan Budget Act of 2018 (the “Budget Act”) was enacted to extend funding for the federal government through March 23, 2018. The Budget Act includes changes to the hardship withdrawal rules for 401(k) plans, including changes that were originally considered for inclusion in (but ultimately dropped from) the Tax Cuts and Jobs Act enacted in late 2017.

Effective for plan years that begin after 2018, a 401(k) plan will be able to

  • Drop the requirement that participant elective deferrals and after-tax contributions be suspended for a period of at least six months following a hardship withdrawal. The Act directs the Treasury Department, within one year from the Budget Act’s enactment date, to issue updated regulations removing the six-month restriction on elective deferrals and after-tax contributions.
  • Grant hardship withdrawals of the earnings on elective deferrals (and not just the elective deferrals themselves), as well as hardship withdrawals of qualified non-elective contributions (QNECs), qualified matching contributions (QMACs) and safe harbor 401(k) contributions, including earnings.
  • Drop the requirement that a participant first obtain any available plan loans from the plans sponsored by the employer before taking a hardship withdrawal.

To implement any of the hardship withdrawal changes, an amendment to the plan document may be needed.