Bipartisan Budget Act of 2018 Includes Changes to Hardship Withdrawal Rules, Wildfire ReliefPublications - Client Alert | February 9, 2018
The President signed the Bipartisan Budget Act of 2018 (the “Act”). In addition to addressing government funding, the Act contains a number of provisions that affect qualified retirement plans. These provisions will likely require plan sponsors to amend their plans regarding hardship withdrawals. They also allow plan sponsors to provide relief for participants affected by the California wildfires of 2017.
Changes to Hardship Withdrawal Rules
The Act makes hardship withdrawal rules less restrictive in a number of ways. Specifically, it:
- Directs the Secretary of the Treasury to eliminate the six-month prohibition on participants making contributions after taking a hardship withdrawal.
- Allows participants to take hardship withdrawals of contributions under a cash or deferred arrangement, qualified non-elective contributions (“QNECs”), and qualified matching contributions (“QMACs”), and earnings on those amounts. Previously, QNECs, QMACs, and earnings on certain contributions under a cash or deferred arrangement were not available for hardship withdrawals.
- Eliminates the requirement that participants take a plan loan before taking a hardship withdrawal.
These provisions are effective for plan years beginning after December 31, 2018. Most plans that allow hardship withdrawals will need to be amended to incorporate the new rules.
Qualified Wildfire Distributions
The Act also permits qualified wildfire distributions to be made from October 8, 2017 to December 31, 2018. Generally, a qualified wildfire distribution must be made to an individual who:
- Had their principal residence in the California wildfire disaster area
- Sustained an economic loss due to the wildfires
A participant can take a qualified wildfire distribution of up to $100,000. Qualified wildfire distributions are not subject to the 10% early withdrawal penalty, can be recontributed within a three-year period, and are included in income ratably over three years.
In addition to permitting qualified wildfire distributions, the Act also permits participants who took distributions for home purchases in the California wildfire disaster area to recontribute those distributions if the purchase was cancelled due to the wildfires. Finally, the Act increases the plan loan limit from $50,000 to $100,000 for affected individuals and permits an extended repayment period.
Plan sponsors who wish to take advantage of the wildfire relief provisions will need to amend their plans in order to do so.
If you have any questions about the Act, or need more information concerning our practice, please contact a member of our Employee Benefits Practice Group.