The IRS has issued Revenue Procedure 2020-09, guidance that extends the deadline for pre-approved retirement plans to amend for final IRS hardship regulations published in September 2019. The amending deadline for these plans is extended to December 31, 2021.
Significant changes to hardship distribution requirements were enacted in the Bipartisan Budget Act of 2018 (BBA). Changes contained in the legislation and reflected in the final regulations—applying to 401(k) and 403) plans—included the following.
- Eliminates the six-month suspension of deferrals and employee after-tax contributions following a hardship distribution.
- Eliminates the need for available plan loans to be taken before receiving a hardship distribution.
- Broadens available plan sources from which hardship distributions may be taken, to include (in addition to elective deferrals) earnings on elective deferrals, as well as qualified non-elective contributions (QNECs), qualified matching contributions (QMACs), ADP and QACA safe harbor contributions—and the earnings thereon (certain restrictions on hardship-available sources apply to 403(b) plans).
- A general standard may be used to determine if a hardship distribution is needed to satisfy a financial need.
- Other provisions apply to casualty losses and to certain federally declared disasters.
BBA and final regulations provisions must be effective for hardship distributions on or after January 1, 2020, although certain changes could be applied for 2018 and 2019 plan years.