Post 1988, hardship distributions of deferral accounts are limited to the dollar amount contributed. Prior to that point, hardship distributions could also be taken from investment earnings on the deferrals. Does anyone know if this change was due to a statutory change or a regulations change?

I found a reference to the restriction in 401(k) regs from that time period, but couldn't find anything in the code about it.

Treasury reg 1.401(k)1 gives the rule, so my take would be the regs changed.

The Tax Reform Act of 1986 added Code Section 401(k)(2)(B)(i)(VI), which is now IRC 401(k)(2)(B)(i)(IV). There was a hardship withdrawal distribution event before TRA'86, but it now said "in the case of contributions ... upon hardship of the employee," which implied that investment earnings weren't distributable upon hardship. The provision was effective for plan years beginning after 12/31/1988, with a later effective date for certain collectively-bargained plans.

In August 1988, the IRS issued final and proposed 401(k) regulations, which included that post 12/31/1988 investment earnings were not distributable upon financial hardship. Sometime later (1991 I believe), the 12/31/1988 date was modified for non calendar year plans.