The Future Updates to Your Retirement Plan

1/24/2019 - By Destini Cooper, QKA

For a Plan Sponsor, the administration and oversight needed when a Participant requests a distribution can be daunting. Coupled with any IRS regulation changes or updates, the process only becomes more difficult. As a Third-Party Administrator, we provide the tools, knowledge, and technical skills needed to help dissolve any confusion that may come from administering a 401(k) Plan.

On February 9, 2018, the Bipartisan Budget Act of 2018 was passed, however, the regulations and administration surrounding the law have yet to be determined. Once implementation guidelines and IRS regulations are confirmed, Plan Sponsors will have a better understanding of how their Plan may be affected. Below are a few of the proposed changes to keep in mind as we draw nearer to the beginning of the 2019 Plan Year.

Under the BBA, the following changes may affect the way you administer your 401(k) Plan:

Before, only elective deferrals and pre-1988 earnings could be distributed (in relation to a hardship distribution). With the BBA, post-1988 earnings on elective deferrals will be allowed to be distributed from a Participant’s account for hardship reasons.
Before BBA, hardship distributions from Qualified Non-Elective Contributions (QNECs), Qualified Matching Contributions (QMACs) and Safe Harbor Contributions were not allowed. Now, a Participant may take a hardship distribution from QNECs, QMACs, Safe Harbor Contributions, and any associated earnings with these contribution types.
In the past, a Participant needed to exhaust all other distribution options allowed by the Plan before taking a hardship distribution, including taking a loan if allowed by the Plan. The BBA has eliminated that necessity entirely.
For Plan Years before January 1, 2019, following a hardship distribution was a six-month suspension for a Participant’s elective deferrals. A big administrative change that the BBA made was eliminating the need for this six-month suspension, starting with distribution taken on or after January 1, 2019. Any distribution that was taken on or before December 31, 2018, is still required to complete the six-month suspension period, even if that period overlaps with January 1, 2019.

Keep in mind, the Tax Cut and Jobs Act of 2017 (TCJA) also changes how a hardship distribution can be taken from a 401(k) Plan.

There were many updates with the TCJA that may affect your business, one being the definition of a casualty loss. As defined by the TCJA, a hardship distribution can only qualify as casualty loss if the casualty occurs in a federally declared disaster area. There are several Safe Harbor categories that would qualify a Participant in a 401(k) Plan to take a hardship distribution. Those categories include:

Payment of medical bills for a Participant or their dependent, spouse, or beneficiary
Purchase of a primary residence
Payment of tuition for a Participant or their dependent, spouse, or beneficiary
Prevention of eviction or foreclosure
Burial or funeral expenses for a Participant or their dependent, spouse, or beneficiary
Repairs to the primary residence due to damage caused by a casualty loss (as defined by TCJA)

It is important to stay up-to-date with the changes posed and implemented by the Department of Treasury and the Internal Revenue Service and how those changes may affect your business and your retirement plan. If you have any questions about these updates and how they may pertain to your business, please contact Destini Cooper.

About the Author | Destini Cooper, QKA
Destini is a staff in Retirement Plan Administration of Saltmarsh, Cleaveland and Gund. Prior to joining Saltmarsh in August 2016, she worked for several years providing 401k plan administration services with a local consulting firm. Destini’s primary areas of experience include plan implementation as well as providing assistance with plan administration and design.

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