close

Make Sure Plan Sponsors Have Those Hardship Changes In Place

helping

I was an attorney for a third party administrator (TPA) in 2007 and one of our plan administrator said that a specific 401(k) plan we were the TPA for had a 7 year graded vesting schedule for matching contributions. The only problem is that 7 graded schedules were outlawed for matching contributions in 2002.

 

For 401(k) plans that permit hardship distributions, the rules changed, beginning on January 1, 2020. Make sure that your plan sponsors clients are administering their plan to the following mandatory changes.:

  1. They must eliminate the 6-month suspension of elective deferral contributions following a hardship distribution made on or after January 1, 2020.
  2. For determining when a distribution can be made on account of an “immediate and heavy financial need”, a plan can’t continue to use a facts and circumstances standard or prior safe harbor standards and must instead use the following standard and ensure that:
  3. A hardship distribution not exceed the amount of the employee’s need;
  4. The employee first obtains other available distributions under the plan and all other qualified or nonqualified deferred compensation plans; and
  5. The employee must represent in writing that he or she has insufficient cash or liquid assets reasonably available to satisfy the financial need

All plans must be amended by the end of 2020. Make sure the amendment gets put in place too.

Story Page
%d bloggers like this: