Retirement Plan Changes in 2020

Contributed by: Catherine Freeman, Mutual of America Group Account Representative

As a retirement plan sponsor, you know that keeping up to date on regulatory issues with your organization’s plan is vital. The Bipartisan Budget Act of 2018 allowed for less restrictive rules to hardship withdrawals.  These new rules may greatly impact your employees at a time of immediate and heavy financial need.  EANE can help you navigate these changes.

Key Updates to the Hardship Rules

  • Elimination of the six-month contribution-suspension following hardship withdrawals | Previously, participants were prohibited from making salary deferrals into the plan for a period of six months after receiving a hardship distribution. 
  • Elimination of the requirement for a participant to take available loans before a hardship withdrawal | Previously, a participant was required to take other available distributions and plan loans prior to taking a hardship withdrawal. A participant will still be required to take other available distributions prior to taking a hardship withdrawal. However, he or she will no longer need to take available plan loans prior to taking a hardship withdrawal.
  • Expansion of amounts available for hardship withdrawals | Previously, hardship withdrawals were not permitted from investment earnings on employee pre-tax and Roth contributions, from safe harbor employer contributions, from qualified non-elective contributions or from qualified matching contributions. In wake of these regulatory changes, hardship withdrawals can be distributed from all these accounts.
  • Addition of a seventh safe harbor category to provide disaster relief | Previously, employees could take a hardship withdrawal in six different scenarios, including for the purchase of a principal residence and burial and funeral expenses. The final rule adds expenses incurred from a disaster federally declared by the Federal Emergency Management Agency.

As a result, plan sponsors with plans that allow hardship withdrawals should begin operating in compliance with the new regulations by January 1, 2020. Further, these plans must be amended to reflect the changes by December 31, 2021*.

*Specific plans may have a different amendment deadline