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Changing Rules for Hardship Withdrawals

A Reminder about the Changing Rules for Hardship Withdrawals

The opportunities to take in-service distributions from retirement plans are limited prior to age 59½. An exception is hardship withdrawals.

The requirements for hardship withdrawals are changing as follows:

  • No Plan Loan – To qualify for the safe harbor for hardships, plans no longer have to require that participants take the maximum loan available before requesting a hardship withdrawal.
  • No Suspension of Deferrals – Also, to qualify for the safe harbor, plans no longer have to suspend employees from making deferrals for six months after receipt of a hardship withdrawal.
  • Withdrawal of Earnings – Earnings on elective deferral contributions may now be included as part of a hardship withdrawal. This does not apply to earnings on elective deferral contributions in 403(b) plans.
  • Withdrawal of Qualified Non-elective Contributions (QNECs), Qualified Matching Contributions (QMACs), and Safe Harbor Plan Contributions – QNECs, QMACs, and safe harbor plan contributions may now be available for a hardship withdrawal along with earnings. This includes post 1988 earnings on deferrals

It should be noted that plan sponsors have always been free to define the circumstances under which employees qualify for hardship withdrawals. The requirements to take a loan and suspend contributions are part of the safe harbor which most employers have chosen to adopt. Where the safe harbor is adopted, the IRS will not challenge hardship withdrawals. Some employers have elected to follow the safe harbor with the exception of the suspension of contributions.

Adopting these changes in the hardship rules will require a plan amendment. Those sponsors using a service provider’s prototype or volume submitter document are best advised to wait for the provider to update its procedures and prepare the necessary amendment.

At this point, it is unclear whether employers may continue to impose the requirements to take a loan and suspend contributions and still qualify for the safe harbor. We hope further guidance from the Department of Treasury will answer this question.

These changes are effective for plan years beginning on or after January 1, 2019.

BGWA.2019.5

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Investment advisory and asset management services are offered by investment adviser representatives (IARs) through Burnham Gibson Wealth Advisors, LLC (Burnham Gibson), a registered investment adviser, and indirect subsidiary of Baldwin Risk Partners, LLC and BRP Group, Inc. Please note that although Burnham Gibson Wealth Advisors, Inc. is a “registered investment adviser”, readers should be aware that registration with the SEC or any state securities authority does not imply a certain level of skill or training. Additional information about the Adviser is available on the SEC's website at www.adviserinfo.sec.gov.

Burnham Gibson IARs are also, separately and apart from Burnham Gibson, registered representatives who offer securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI and TN), as well as agents who offer insurance and annuity products through Equitable Network, LLC, which conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, and in PR as Equitable Network of Puerto Rico, Inc. For more information about Equitable Advisors, LLC, you may visit https://equitable.com/crs to review the firm’s Relationship Summary for Retail Investors and General Conflicts of Interest Disclosure. Equitable Advisors and Equitable Network do not provide ERISA fiduciary, tax or legal advice and are not affiliates of Burnham Gibson, Baldwin Risk Partners, LLC and BRP Group, Inc. Individuals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. AGE-153660 (10/20) (Exp. 10/24)

Please note that any BGWA IAR holding the QKA (Qualified 401(k) Plan Administrator) and/or the CPFA (Certified Plan Fiduciary Advisor) professional designation does so only in his or her capacity as an IAR with BGWA and entirely outside of Equitable Advisors and Equitable Network. Neither designation reflects any Equitable Advisors or Equitable Network service or product offering. CERTIFIED FINANCIAL PLANNER Board of Standards Inc. owns the CFP® and CERTIFIED FINANCIAL PLANNER™ certification marks in the U.S., which it awards to individuals who successfully complete the CFP Board's initial and ongoing certification requirements. The CLU®, ChFC®, Chartered Life Underwriter® and Chartered Financial Consultant® marks are the property of The American College, which reserves sole rights to its use, and is used by permission.

Please note that although Burnham Gibson Wealth Advisors, LLC is a “registered investment adviser”, readers should be aware that registration with the SEC or any state securities authority does not imply a certain level of skill or training. Additional information about the Adviser is available on the SEC’s website at www.adviserinfo.sec.gov.

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