Facts
I sponsor a 401(k) Plan for myself and my staff. I recently processed a hardship distribution for the purchase of my primary residence in October 2018. I know the rules require me to suspend my deferral elections for six months following a hardship distribution, but I recently came across an article that said I don’t have to impose the suspension anymore. I’d really like the opportunity to continue deferring if I am allowed.
Question
Do I have to continue suspending my deferral election for the remainder of the six-month period following my recent hardship distribution? If am able to stop the suspension, is there anything I need to do with the plan document?
Answer
You are correct…on both counts! The current rules do require you to suspend deferrals for six months for any participant that takes a hardship distribution. However, there are new rules that take effect January 1, 2019, that do away with that suspension requirement.
Since you have already taken the hardship distribution, you have a choice to either let the full suspension play out or stop the suspension as of January 1, 2019. Keep in mind that how you handle the situation for yourself sets the bar for how all other similarly situated participants must be treated.
Currently, there is nothing you need to do with respect to your plan document. However, you eventually need to adopt an amendment to memorialize application of the new rules to your plan. That includes documenting how you have implemented the various provisions, e.g. continuing the full six-month suspension or resuming deferrals as of January 1st. As such, we strongly suggest keeping track of how you handle hardship suspensions in the interim.
While the new rules allow plan sponsors to continue to apply the hardship suspensions through the end of 2019, plans are prohibited from applying the suspension for all plan years beginning in 2020 and beyond.
If you have questions surrounding hardship distributions, reach out to DWC and we are happy to provide our support.
For more information on hardship distributions in general and the new rules more specifically, please visit our Knowledge Center here and here.
