Legal Blog

Hardship Withdrawal Plan Amendment Deadline

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadlinePlan 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. 



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