The Bipartisan Budget Act of 2018 was signed into law on February 9, 2018. There are several provisions in this act that affect pension plans, but the most notable changes are those relating to hardship distributions. There are three changes to the hardship rules contained in the Budget Act. Good news: they are all helpful in facilitating hardship distributions. These changes become effective for Plan Years that begin after December 31, 2018, so they won't take effect until 2019.
1. Currently, a participant in a plan who receives a hardship distribution may not make elective deferral contributions for at least 6 months after the withdrawal. This 6 month waiting period has been eliminated.
2. In order to be eligible to take a hardship distribution, a participant must not be able to obtain funds from other sources. If the plan allows for participant loans, the participant must take any available plan loans before receiving the hardship distribution, unless repayment of the loan would create an additional hardship. The Budget Act eliminates the requirement to take a plan loan before receiving a hardship.
3. Hardship distributions can currently be made only from elective deferral contributions and (to the extent allowed by the plan) any discretionary employer contributions, but may not include any earnings on the deferrals. The Budget Act changes this rule so that participants will also be able to take hardship distributions from all contribution sources, including “Safe Harbor” matching and non-elective employer contributions, plus earnings on all sources.
Most plan documents will require an amendment in order to take advantage of these changes. We will reach out to all plan sponsors who may be affected by this change later this year with guidance on any action that may be required.
If you have any questions about how these new provisions will affect you and your employees, please don’t hesitate to give us a call at 908-575-7575 or email info@preferredpension.com.