403(b) Curriculum Library

Compliance Alert: Retirement Plan Surprises in the Budget Bill

In order to provide spending to keep the government operating and avoid another government shutdown, President Trump signed the Bipartisan Budget Act of 2018 on February 9, 2018 (the government was technically shut down for several hours).  While this piece of legislation was not remotely related to retirement plans, a few retirement-related provisions were included.  Some of these provisions were found in previous versions of the tax reform bill, but were dropped from the final law.  Other provisions, however, are new to this particular piece of legislation.

The retirement-related provisions are:

  • The IRS has been directed to write regulations, within a year, that would eliminate the six-month elective deferral suspension period following a hardship distribution. Since the regulations would be effective beginning in 2019, there is presumably time for plan sponsors and recordkeepers to change their operations once the regulations are released.
  • QNECs, QMACs, and contributions to profit-sharing or stock bonus plans, and all earnings related to these contributions (note that this differs from elective deferrals, where only contributions, and not earnings, can be distributed), are eligible for hardship withdrawals, provided that the plan permits such distributions.
  • The requirement that an individual must take all available loans from the plan prior to taking a hardship distribution has been eliminated.
  • Effective immediately, if an employee’s retirement plan was levied by the IRS and the money is eventually returned to the individual, then the employee can re-contribute the amount of the levy to the plan, as long as the plan permits such a contribution.  The contribution must be made by the employee’s tax return filing deadline for the year the money is returned.
  • Participants affected by the California wildfires are granted relief from the following loan and distribution rules:
    • The 10% early withdrawal penalty for qualified distributions up to $100,000 made on or after October 8, 2017, and before January 1, 2019.  Distributions must be made by an individual whose principal place of residence was in a wildfire disaster area and who sustained an economic loss due to the wildfires. Distributions can be repaid to the plan, if desired, within three years.
    • The loan limit for these individuals increases to 100% of plan assets, up to $100,000 (this provision may be difficult for recordkeepers to administer).
    • All loan repayments during the aforementioned period are delayed for one year. This delay does not count toward the repayment period of a loan, but interest will accrue during the delay.

All of these provisions are effective in 2019, unless otherwise indicated.  Ironically, the budget legislation appears to include more retirement plan-related provisions than the recently enacted tax reform law, despite the fact that the latter was a much more comprehensive piece of legislation. Plan sponsors, and those who work closely with retirement plans, should prepare accordingly.

Stay tuned to Cammack Retirement Group for future updates.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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