New Hardship Rules

New Hardship Distribution Rules

1. Mandatory suspension of deferrals

Currently, if a participant takes a hardship distribution from the plan, they must suspend deferrals for six months. That requirement is being removed and deferrals can continue.

2. Participant loan requirement

Prior to the changes, if a participant requested a hardship distribution and your plan permitted participant loans, they were required to take the loan first. They are no longer required to take a loan before the hardship can be granted. If the participant is age 59-1/2 or older, they will be required to take an in-service distribution before the hardship can be granted, if your plans permits in-service distributions.

3. All fund types available for hardship distribution

Currently, earnings on employee deferrals and Safe Harbor contributions could not be paid out as a part of the hardship distribution. That restriction is being removed. At this time, no amendment is required to add these changes to your plan document. A model amendment is anticipated during 2012.

Year-end tax planning impacts retirement plan contributions

Most retirement plan contributions are a function of an individual’s annual compensation.   When meeting with your tax advisors to finalize 2019 financial results, be aware that changes in compensation can change your retirement plan’s contribution amount.

Various approaches may be available to achieve your objectives regardless of changes in your financial picture.   Be aware that many changes can be made prior to December 31, 2019, but cannot be made retroactively in the new year.   Now is the time to coordinate all areas of your financial planning.

Ask Qualified Pension Consultants to project the impact of any changes or to provide preliminary contribution figures for your 2020 year.