Retirement plans were in the news a lot during 2020, but one thing that may have been missed or overlooked are the changes made to hardship withdrawal rules. The following changes were made as of January 1, 2020, with some being mandatory and some being optional. We’ve outlined the most important changes that are mandatory, and some that you may wish to consider that are optional as well.
- Elimination of the six-month contribution suspension requirement.
- Ease of hardship verification:
- Distribution should not exceed what an employee needs and that employees certify that they lack enough cash to meet their financial needs.
- Must obtain other available distributions under the plan and all other plans of deferred compensation maintained by the employer, whether qualified or nonqualified.
- Plan administrators can rely on the employee certification unless they have knowledge to the contrary.
- Expenses and losses incurred as a result of a disaster declared by FEMA are included only if the participant’s principal residence or place of employment is included in disaster area. No special disaster relief will have to be issued.
- End the need to take a plan loan before a hardship withdrawal.
- Make earnings available for withdrawal as well as profit sharing and stock bonus contributions.
Plans that currently offer hardship withdrawal will need to amend the plan no later than December 31, 2021.
Managing the compliance requirements of your 401(k) plan can be challenging especially in light of changing environment, rules, and regulations from the Department of Labor and IRS. That’s why it’s important to have a clear understanding of the audit requirements, including exceptions, to ensure your plan maintains compliance. If you have questions or need assistance with an upcoming benefit plan audit, Barnes Dennig can help. For additional information please call us at 513-241-8313 or click here to contact us. We look forward to speaking with you soon.