Compliance Alert: The Hardship Regulations are Final
On Thursday, September 19th, the Internal Revenue Service (IRS) finalized the hardship regulations that were previously issued in proposed form on November 9, 2018. While finalized regulations often differ from proposed regulations, due to the IRS considering written comments, these final regulations contain no substantive changes. To review the proposed regulations, please see our previous Compliance Alert.
There are, however, some issues raised by the IRS in the final regulations that are worthy of note:
- With respect to employee representation of financial hardship beginning in 2020, an employee can make a representation that he or she has insufficient cash or other liquid assets reasonably available to satisfy a financial need, even if the employee does have cash or other liquid assets on hand, provided that those assets are earmarked to pay an obligation in the near future (e.g., rent).
- Employee representations may be made over the phone, provided that the call is recorded.
- The IRS retained the requirement from the proposed regulations that the plan administrator may rely on the employee's representation, unless the plan administrator has actual knowledge of the contrary. As retirement plan expert Sal Tripoldi has noted, this could be an administrative minefield for plan sponsors, as plan sponsor personnel responsible for the administration of a retirement plan, particularly those working in Human Resources, could be aware of personal information regarding employees.
- It was clarified that plans could require a minimum amount for hardship distributions, provided the minimum is non-discriminatory.
- Deferred compensation plans, including 457(f) plans, are not subject to the restriction on the suspension of deferrals, so if there is suspension of deferral language in these plans when a hardship distribution is taken from a 401(k) or 403(b) plan, that language can be retained (plan sponsors also have the ability to eliminate it).
- For 403(b) plans that have a remedial amendment deadline of March 31, 2020, The Treasury Department and the IRS are considering a later amendment deadline in separate guidance for the amendments relating to the final regulations.
- To be considered using the safe harbor standards for hardship distributions, a plan need not allow hardship distributions for all safe harbor expenses or for expenses of all the categories of individuals described in the regulations
For questions regarding the final Hardship Regulations, please contact your consultant. Stay tuned to Cammack Retirement for 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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