The BBA impacts hardship distribution rules for retirement plans. Generally speaking, the proposed changes will make it easier for participants to qualify for a hardship and increases the amounts available for hardship distribution. The U.S. Department of the Treasury and the IRS issued proposed regulations to address these changes to hardship rules made by the BBA.

The changes to the hardship rules would:

  • Remove the six-month suspension of an employee’s contribution after receiving a hardship distribution
  • Eliminate the requirement that a participant take a loan prior to obtaining a hardship distribution
  • Allow hardship distributions (at the election of the plan sponsor) from deferrals, qualified matching contributions (QMAC), qualified non-elective contributions (QNEC), and applicable earnings*

In addition, the list of eligible expenses for a hardship distribution would include:

  • Qualifying medical, educational, or funeral expenses incurred by the participant for their primary beneficiary under the plan
  • A qualifying casualty loss from causes other than federally declared disasters
  • Expenses incurred by a participant whose principal residence or principal place of employment is within an area designated by FEMA for assistance on account of a disaster

What’s next? Your retirement plan provider should be reaching out with specific information regarding how these changes will be implemented within their recordkeeping system and your plan document. Generally, sponsors may elect to continue the suspension of a participant’s contribution for six months after receipt of a hardship distribution until January 1, 2020; however, some providers are removing this from their deferral reporting as of January 1, 2019. Sponsors may also opt to retain the plan loan first requirement for hardship eligibility and the limitations on sources available for hardships.

If you have any questions on how this impacts your plan operations, please do not hesitate to reach out to the AFS Team.

*Note: The expansion of allowable sources generally doesn’t apply to 403(b) plans. 
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Assurance Financial Services, Ltd (AFS)  and Assurance Agency, Ltd (Assurance) are not affiliated with Kestra IS or Kestrra AS. AFS is a wholly owned subsidiary of Assurance.