The IRS published the final rule regarding participant hardship distributions from defined contribution plans. Hardships get a little easier with expanded qualification rules and streamlined review process. Some of these changes are mandatory, requiring employers to make the changes by Jan. 1, 2020, while others are optional. Though the IRS had issued the proposed regulations in 2018, the final regulations clarify a few key provisions.
The first quarter of the calendar year typically sees an uptick in the number of retirement plan distributions and participant loans. This year may be even busier than most, given the relief announced by the IRS for victims of the recent hurricanes and wildfires. Whatever the reason, participant distributions present a complex set of rules for Plan Sponsors to navigate.
Times can get tough for people. With the onset of Hurricane Harvey having decimated parts of the Gulf Coast and Hurricane Irma following its destructive lead, we are reminded that at any point we may find ourselves in hardship. Companies make layoffs, natural disasters occur, emergencies… well, emerge. With nowhere else to turn, some will look to their 401k for their own disaster relief. A withdrawal in the form of a "hardship distribution" is one of the tools that participants may use in this situation.