Plan sponsors now have some concrete direction from the IRS for the deadline to amend pre-approved, qualified retirement plans to include permitted hardship withdrawal provisions. The IRS has long indicated that the deadline would be extended (including this past October by Carol Weiser, Benefits Tax Counsel), but had not indicated a deadline. Now, the December 12 Rev. Proc. 2020-09, that deadline is December 31, 2021.
Briefly, in September of this year, the IRS had issued final regulations providing that pre-approved retirement plans must be amended to: (1) eliminate the six-month suspension of contributions following a hardship distribution made on or after January 1, 2020; (2) permit plans to eliminate the requirement that participants obtain all available plan loans before receiving a hardship distribution; (3) expand the types of contribution sources available for hardship distributions; (4) add a new type of safe harbor hardship expense for losses relating to a federally-declared disaster; and (5) update the administrative process required to document that the distribution is necessary to meet the financial need. Now, plan sponsors are directed that they have until the end of 2021 to amend their plans to include the necessary provisions to accomplish these adjustments.
The September regulations directed that interim amendments conforming to the new rules be made by the due date of the employer’s tax return that includes January 1, 2020, but there was deep concern among practitioners that the timing of the release of the final regulations had resulted in an unreasonably short time in which to make the required amendment. Fortunately, the IRS has extended the original deadline and is now permitting a very reasonable time frame.
It is important to note that simply because the IRS is affording plan sponsors two years, procrastinating such amendments until the end of the period can be hazardous. Just because a plan sponsor has more time to amend its plan doesn’t mean that it should be put off.
If you have any questions about this or any other legal matter, please contact us.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing full-service law firms in the United States. With over 200 attorneys in 14 offices that stretch from New York to North Carolina, we represent privately-held companies and families of wealth throughout their business life cycles. Our mission is to provide our clients with “The Better Way” to grow their organizations, protect their businesses’ and families’ wealth, and resolve their most challenging legal conflicts. In addition to our quality of attorneys and breadth of legal services, Offit Kurman is distinguished by our unique operational structure, which encourages collaboration rather than internal competition. The same approach that makes our firm attractive to legal practitioners gives clients unlimited access to experienced counsel in every area of the law. Trust, Knowledge, Confidence—in a partner, that’s perfect.
Find out why Offit Kurman is The Better Way to protect your business, your assets and your family by connecting via our Blog, Facebook, Twitter, Instagram, YouTube, and LinkedIn pages. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA | VIRGINIA | WASHINGTON, DC