Author: Jordan Schreier

As Congress negotiated the legislation that ended up as The Tax Cut and Jobs Act (“Jobs Act”) and the Bipartisan Budget Act of 2018 (“Budget Act”), it considered significant changes to employer based retirement plan rules.  However, very few of these were included in the final versions of these acts.  One set of changes that did become law were to the rules that apply to hardships distributions from Internal Revenue Code (“Code”) Section 401(k) and 403(b) retirement plans. Background Although not required by law, a retirement plan may allow a participant to receive a hardship distribution from the participant’s elective deferral contribution, discretionary employer contribution and regular matching contribution accounts (and the earnings on these contributions made before December 31, 1988), but only if the distribution is due to an immediate and heavy financial need and is limited to the amount necessary to satisfy the financial need. A plan may provide that the plan administrator will made an individualized determination of whether a hardship distribution satisfies these standards or it can provide for a regulatory safe harbor under which a distribution is automatically considered to be necessary to satisfy an immediate and heavy financial need if all of the following requirements are met: The distribution isn’t greater than the amount of the immediate and heavy financial need, including amounts necessary to pay any taxes resulting from the distribution. The...