Labor and Employment Alert: Final Hardship Regulations Are Here – Get Ready to Amend Your Plans

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On September 23, 2019, the Treasury Department published final regulations affecting hardship distributions for 401(k) and other retirement plans.


The final regulations are substantially similar to the proposed regulations, which we had described in our prior labor and employment alert. Plans that had been amended in compliance with the provisions of the proposed regulations will satisfy the final regulations. However, because the final regulations expanded the proposed regulations in some respects, a plan sponsor may want to further amend the plan.

What changed and what stayed the same?

The final regulations include the following provisions:

Expanded List of Hardship Reasons

The final regulations, like the proposed regulations, expand the list of safe harbor expenses eligible for hardship distributions:

Expanded Sources for Hardship Distributions

The final regulations allow distributions from 401(k) plans of elective contributions, QNECs, QMACs, safe harbor matching contributions and earnings on these amounts. This effectively allows hardship distributions from most contribution sources. Note, however, that earnings on 403(b) account balances still cannot be taken as a part of a hardship distribution (because of a continuing statutory limitation). Employers should think about what contribution sources should be distributable.

Remember, if an employer expands their current process to allow hardship distributions from safe harbor matching contributions, an updated safe harbor notice reflecting that hardship withdrawal opportunity must be distributed.

Financial Need

Imposition of Other Limitations

The final regulations confirm that a plan can impose other limitations on hardship distributions, like setting a minimum withdrawal amount and requiring submission of supporting documentation.

When do the changes take effect and what changes should plan administrators make?

Change Plan Operation. If a plan administrator has not already changed its hardship distribution process, it will need to take action to comply with the new rules. Plan administrators that have already implemented the new rules may not need to make any operational changes. Plan sponsors should be prepared to tell their plan document provider when the different rule changes were implemented so that an amendment can be drafted with appropriate effective dates.

Adopt Plan Amendments. Employers should amend their plan documents to reflect these changes. The deadline will depend on your plan:

Plan Type

Amendment Deadline

Individually designed – non-governmental

December 31, 2021

Pre-approved plan

Tax filing deadline plus extensions for 2020

403(b) plans

March 31, 2020 (but the IRS is considering an extension)

Contact your Vorys lawyer if you have questions about the effect the new rule will have on your benefit plans.