Leaderboard

The addition of 401(k)(14) to the Code by the Bipartisan Budget Act of 2018, which broadens the potential sources of hardship distributions to include QNECs, QMACs, and earnings, and permits a hardship distribution without the requirement that a participant take an available loan, are effective by statute for plan years beginning on or after 1/1/2019. There is no special effective date provision for these changes in the proposed regs, but of course the Code does not mandate that an employer permit hardship distributions or make the maximum permissible amount available for them , so an employer has discretion whether, and if so when and to what degree, to implement these changes. In addition to the broadening of the source for hardship distributions, there is also the change that plans can no longer require a suspension of deferrals for six months (i.e., they can no longer suspend at all). Because this was not a change made to the Code by BPA, but rather a directive from Congress to the IRS to change the regs, the IRS was able to provide flexibility with respect to it. Under the proposed regs, you can optionally make the change effective for hardships after 12/31/2018 or for hardships before 1/1/2019 for the portion of the 6-month period that would extend beyond 12/31/2018. You can also keep the suspension for hardship distributions made all the way through 12/31/2019, but under the proposed regs it's not optional at all for hardship distributions after 12/31/2019. So regardless of whether you've amended by then for this change (and you almost certainly will not have been required to amend for it by 12/31/2019, as explained below), you need to stop suspending for post-2019 hardship distributions. There is also the change to the casualty loss hardship. TCJA narrowed casualty losses for Section 165 deductibility purposes from 2019 through 2025 to only those suffered in federally declared disaster areas. Because the resulting "glitch" for 401(k) hardship distributions was merely an indirect result of a TCJA change to a portion of the Code that was incorporated by reference into the IRS's hardship regs, the IRS did not have to follow it, and the proposed regs would eliminate the requirement that an otherwise good Section 165 casualty loss occur in a federally declared disaster area in order to be a good "hardship" for 401(k) hardship distribution purposes. Some well-informed plans presumably took TCJA and the existing 401(k) regs at their word and did not permit casualty loss hardships outside of federally declared disaster areas after 12/31/2017, while some, oblivious to the change, or counting on relief from IRS, may have continued to permit casualty loss hardships outside federally declared disaster areas after 12/31/2017. Again, since these issues arose primarily under the regs, and not as a result of direct statutory changes, the IRS had leeway to provide flexibility on the effective date, and the proposed regs would bless both approaches (i.e., requiring that the casualty loss be in a federally declared disaster area, or not) through 12/31/2018. Because the proposed regs liberally treat all of these changes (and the adding of FEMA-declared disasters to the safe harbor) as "integrally related" to changed qualification requirements, under Rev. Proc. 2016-37, plans will not be required for qualification purposes to be amended for any of these changes for a long time. For an individually designed plan, the employer has until the date that will eventually be specified in the Required Amendments List. The 2018 RAL was published today, and it does not include these new rules. In fact, there are no RAs on the 2018 RAL. So again, it will be awhile, probably at least a few years. Preapproved plans will not be required to be amended until the end of the next 6-year cycle. So in a sense, there is a lot of freedom as to when to implement these changes. The only change that is mandatory is no longer suspending the ability to make elective deferrals if the participant takes a hardship distribution, which must be implemented in operation no later than for hardships made in plan years beginning on and after 1/1/2020, although no amendment to the plan document will probably be required until well after that date. However, the provisions of the eventual plan amendment will need to "walk back" and include exactly what the employer did in implementing any or all these changes, and when they did it, so it probably would be unwise to begin to implement any of them until the employer has something in writing (whether a draft amendment, a memorandum explaining what the employer intends to include in its amendment, an SMM, or an IRS model amendment) that both describes what changes it intends to implement and when it will implement them, in detail. And once the employer has done that, it will need of course to inform its employees of the change in some way. However, an SMM is not required until 210 days after the end of the plan year in which the change is implemented, so before that date a less formal communication could be considered. So in brief, employers need to figure out, likely with the assistance of counsel and/or their consultant, which of the changes they want to make and think through all of the details. They should not, and need not, implement any of the changes until they have done that and have some sort of detailed writing specifying what they're going to do. Once they have that, they might as well implement the changes they have decided on, and of course that requires communicating those changes to participants. Under Rev. Proc. 2016-37, which did away with "good faith interim amdnements," no formal amendment will be required for quite a while. In the case of plans using preapproved documents, presumably, in order to save on costs, the employer will want to hold off on any implementation (other than stopping suspensions of elective deferrals after 2019) until the preapproved plan vendor has come up with some sort of written implementation package, which will likely include an amendment. I would suspect those will be available in the next few weeks or months.

I'm guessing that the participant gets one form of distribution if they separate before hitting NRA and a different distribution form after NRA. If that's the case, then changing NRA for amounts accrued would be changing the benefit formula with would impose a 5 year delay (kind of the complete opposite of what lowering the NRA would achieve). Prospective would work just fine.

This is complicated, but based on your brief description it sounds like lowering the NRA for amounts already accrued under the plan could, depending on other facts not included in your description of plan provision, result in an impermissible acceleration of time of payment.

Every bone in my body agrees with ETA. Have you read the definition of a related rollover?