The Bipartisan Budget Act of 2018 and the Tax Cuts and Jobs Act of 2017 liberalized the hardship distribution rules applicable to 401(k) and 403(b) plans. On September 23, 2019, the IRS issued final regulations — which we discussed in a previous blog — implementing the new hardship distribution rules. While some of the new rules were discretionary, there are several mandatory provisions that will take effect on January 1, 2020, including:

• Plans are prohibited from suspending employee deferral contributions following hardship distributions that occur on or after January 1, 2020; and

• Employees must represent in writing (including electronic representations) that they have insufficient cash or other liquid assets reasonably available to satisfy the need giving rise to hardship distribution requests that are made on or after January 1, 2020.

On December 12, 2019, the IRS issued Rev. Proc. 2020-9, clarifying when 401(k) plans must be amended to comply with the elimination of deferral suspension and written representation rules described above: December 31, 2021 for both individually designed and pre-approved 401(k) plans, which aligns with the deadline the IRS established for non-governmental 403(b) plans in Rev. Proc. 2019-39.

Key Takeaway: Although plan documents do not need to be amended immediately, plan sponsors should ensure that they are in operational compliance with all mandatory hardship distribution rules that become effective on January 1, 2020.

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Photo of Stephanie O. Zorn Stephanie O. Zorn

Stephanie O. Zorn is Of Counsel in the St. Louis, Missouri, office of Jackson Lewis P.C.

Ms. Zorn has over twenty years of experience representing management in employee benefits and employment matters, both as in-house counsel and in private practice.

Ms. Zorn’s employee…

Stephanie O. Zorn is Of Counsel in the St. Louis, Missouri, office of Jackson Lewis P.C.

Ms. Zorn has over twenty years of experience representing management in employee benefits and employment matters, both as in-house counsel and in private practice.

Ms. Zorn’s employee benefits practice includes counseling clients with regard to plan compliance, administration, participant disclosures, reporting and drafting requirements under ERISA, the Internal Revenue Code, ACA, HIPAA and COBRA.  Ms. Zorn assists clients with a broad range of plans, including retirement plans, welfare benefit plans, nonqualified plans, executive compensation plans, severance plans and voluntary early retirement plans.  Ms. Zorn’s practice includes counseling clients on fiduciary compliance — including investment selection, service provider reviews and plan committee issues — and merger and acquisition issues.  Ms. Zorn also represents clients in a range of employee benefits claims and litigation, including ERISA claims for plan benefits and COBRA compliance challenges.

Ms. Zorn’s employment practice consists of counseling and defending employers in connection with discrimination, harassment, disability accommodations, family and medical leave and wage and hour matters.  Ms. Zorn also assists clients with reductions in force and reorganizations, noncompete and confidentiality agreements, retention agreements, service provider classification, outsourcing and international labor and employment matters.

Ms. Zorn is a frequent speaker on employee benefits and employment law issues, including federal health care reform and discrimination laws.