Can an ERISA 403(b) Plan Eliminate Hardship Distributions?

Q: Due to overutilization, we wish to eliminate the hardship distribution provision in our 403(b) plan. Can we?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Yes, for 403(b) plans governed by ERISA, hardship distributions are generally not considered a protected optional form of benefit under ERISA section 204(g) and applicable regulations, so it is possible for a plan to eliminate this provision. For non-ERISA plans (e.g., governmental or church plans), state law or plan document terms may limit a plan’s ability to eliminate the benefit. As with all plan amendments, you will want to consult with outside retirement plan counsel to confirm that eliminating your plan’s hardship distribution provision doesn’t affect any other protected benefits or otherwise violate applicable federal or state law.

It may also be possible for you to take other steps to mitigate overutilization. As discussed in a previous Ask the Experts column, you could consider other methods (e.g., placing a limit on the number of hardship distributions that may be taken each year.)

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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