Since regulations and laws change regularly, the IRS keeps an Operational Compliance List (OCL) plan administrators can use to ensure the benefit plans they’re responsible for overseeing are in compliance with the latest rules. Recently, they released the changes that will be in effect this calendar year, which include the following important items:
- Bipartisan Budget Act of 2018, Sections 41113 and 41114 (the “Budget Act”): These specific sections discuss plan distributions made to an employee, specifically hardship distributions. Generally, hardship distributions are available now, even if the employee does not take advantage of a loan from the plan. Further, the Budget Act expands both the types of earnings and the types of contributions that a plan can use to make hardship distributions to an employee. Finally, the Budget Act directs the IRS to eliminate the current safe harbor requirement “to suspend participant contributions for six months in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need.”
- Hardship Withdrawals: Proposed regulations regarding these hardship withdrawals revise current 401(k) regulations in line with the above-cited law. These regulations propose to prohibit plan administrators’ ability to suspend contributions as a condition of obtaining a hardship withdrawal. Further, the proposed regulations include an expanded list of “safe harbor” expenses that are deemed to “constitute an immediate and heavy financial need, including modifications regarding casualty losses and disaster-related expenses.” Further, the regulations include timing proposals for how plans can handle implementing these new regulations on hardship withdrawals. Until a final version of these regulations is released, plan administrators can rely on the proposed regulations and operate their plans accordingly. Once the final version of the regulations is released, plans will need to be updated to comply with those regulations.
- Hurricane Victim Relief: Victims of Hurricane Florence and Hurricane Michael, two 2018 hurricanes that hit the east coast of the U.S., have been extended retirement plan relief through mid-March 2019. An area that has been hit by a hurricane takes significant time and resources to recover, and access to hardship funds to help facilitate this recovery is a critical component.
Benefit plan sponsors should review plan documents to determine if the described changes require plan amendments to their qualified retirement plan. These changes are likely to impact the daily operations of most 401(k) plans.