(b)lines Ask the Experts – Elimination of Suspension of Contributions After Hardship Withdrawal

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning 403(b) plans and regulations.

“I understand that the new proposed hardship regulations will require us to eliminate the six-month suspension of elective deferrals from all retirement plans that we sponsor following a hardship distribution. We’ve always hated this provision, and we are eager to eliminate it as soon as possible. How soon may we eliminate this provision?”


Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:


You are not alone, as many plan sponsors find this provision to be an administrative burden due to the fact that it requires a rather complicated interface between the plan sponsor and recordkeeper to properly administer. The good news is that the 6-month suspension provision can be eliminated fairly quickly, as soon as January 1, 2019. In fact, you can also elect for current suspensions to cease as of January 1, 2019, even though the related distributions occurred in 2018, when the old rules still apply.


For example, if you have a hardship distribution that was made on October 1, 2018, you can stop the suspension of elective deferrals on January 1, 2019, even though the six-month suspension period had yet to be completed. Alternatively, you can elect for the six-month suspension to continue into 2019 for such a distribution (until March 31, 2019, in this example), but since your desire is to eliminate the provision as soon as possible, rescinding all elective deferral suspensions on January 1, 2019, seems preferable.


It should also be noted that, unlike some other aspects of the proposed hardship regulations, if the regulations are finalized as written, the removal of the 6-month suspension of elective deferrals is MANDATORY, for hardship distributions made on or after January 1, 2020; plan sponsors cannot elect to retain this provision after that date.



NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.


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