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IRS 2019 Required Amendments List Requires Individually Designed 401(k) and 403(b) Plans to be Amended by Dec. 31, 2021, for Hardship Distribution Changes

December 18, 2019

In a previous alert, IRS Adopts Final Regulations Changing Hardship Distributions, we analyzed the IRS’s recently issued final hardship distribution regulations. As indicated in the alert, individually designed 401(k) and 403(b) plans affected by the final hardship distribution regulations would generally need to be administered in accordance with them beginning no later than Jan. 1, 2020 and plan documents would need to be amended to incorporate any required changes by no later than December 31 of the second calendar year following the calendar year in which amendments for the final hardship distribution regulations were included on the IRS’s Required Amendments List (“RAL”). The IRS recently published the 2019 RAL and it includes amendments for the final hardship distribution regulations, thus requiring affected 401(k) and 403(b) plans to be amended by no later than Dec. 31, 2021. The 2019 RAL may be found here.

Many of the rules in the IRS’s final hardship distribution regulations are optional or are required only for optional plan provisions. However, the new prohibition on requiring a suspension of elective contributions by participants who receive hardship distributions and the new rules for obtaining a written representation from the participant regarding his or her inability to satisfy the hardship from sources other than the plan from which he or she is requesting the hardship distribution will require amendments to most, if not all, 401(k) and 403(b) plans that permit hardship distributions. 

Nonprofit and governmental employers should note that while the IRS’s hardship distribution regulations do not apply directly to 457(b) plans, the new rule that prohibits a plan sponsor from suspending a participant who receives a hardship distribution from making elective contributions to both the plan from which the hardship distribution is taken and from any other plans of the employer that permit elective contributions, includes a prohibition on the plan sponsor’s suspending the participant’s ability to make elective contributions to a 457(b) plan. 

Note also that the 2019 RAL’s Dec. 31, 2021 deadline for any plan amendments required by the final hardship distribution regulations applies only to individually designed 401(k) and 403(b) plans. An adopter of a pre-approved 401(k) or 403(b) plan should consult the pre-approved plan’s sponsor regarding the plan’s required amendment deadline for the final hardship distribution regulations and should also stay tuned for additional IRS guidance on this subject. 

The only other required amendment included in the 2019 RAL applies to collectively bargained cash balance or other hybrid defined benefit plans that need to be amended for the IRS’s final hybrid plan regulations.

If you have any questions about, or need assistance with, amending your 401(k) or 403(b) plan, you may contact the Clark Hill Employee Benefits and Executive Compensation Group attorney who usually advises on 401(k) or 403(b) plan matters.

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