The Budget Act of 2018 allowsplan sponsors to eliminate the mandatory six-month suspension ofelective deferrals as well as the requirement to take a loan priorto seeking a hardship withdrawal. (Photo: Diego M.Radzinschi/ALM)

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We can't predict the future, but sometimes the immediate pastleaves enough breadcrumbs to show us a reasonably correct path.

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Such was the case with the Budget Act of 2018 and the IRS Letter Ruling201833012. These addressed the type and nature of hardship withdrawal rules corporate retirementplans can adopt. Plan sponsors need to be aware of the potentialbenefits and harm the opportunity to change theplan's rules may present to employees.

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Christopher Carosa, CTFA, ischief contributing editor for FiduciaryNews.com, a leading providerof essential news and information, blunt commentary and practicalexamples for ERISA/401(k) fiduciaries, individual trustees andprofessional fiduciaries.

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The Budget Act of 2018 allows plan sponsors to eliminate themandatory six-month suspension of elective deferrals as well as therequirement to take a loan prior to seeking a hardship withdrawal.In addition, it increases available funds subject to hardshipwithdrawals. Together, these changes will allow employees easieraccess to more of their retirement savings well in advance ofretirement.

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Related: DC plan drawbacks that endanger workerretirements

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A fiduciary must ask whether this is in the best interest of theemployee. This doesn't present itself as a black and whiteargument. We certainly don't want employees who are sitting onlarge retirement assets to starve today because they don't haveaccess to their money. On the flip side, we know most people aren'tsaving enough for retirement and that encouraging them to take a“hardship” withdrawal will likely come back to haunt them inretirement.

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Amending plan rules to reflect these changes must be done by theend of the plan year they first become effective.

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The private letter ruling issued by the IRS addresses anotherproblem we're seeing all too often in the headlines: runawaystudent loan debt. The letter allows companies to apply 401(k)matching contributions to employees who have made student loanpayments. This, in effect, removes one of the most cited reasonswhy younger employees don't contribute to their company'sretirement plan. It's not a direct “hardship” withdrawal, but anindirect one in the sense that it may divert funds that wouldotherwise go towards retirement saving.

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While this may sound good, be forewarned: An IRS private letterruling has limited applicability. It does not reflect official IRSguidance. This may put the damper on many 401(k) plans offering thesame benefit. On the other hand, if there's growing demand amongemployees for a student loan benefit program, expect the IRS to beinundated with similar private ruling requests. Who knows? Thisjust might inspire the IRS to issue general guidance on thematter.

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Again, the fiduciary needs to consider the upside and downsideof such a policy. Arguments in favor of a student loan benefitprogram include both the ability to reduce student debt and at thesame time make at least some nominal savings for retirement.Arguments against a student loan benefit program include thataforementioned diversion of funds away from saving for retirement.Most, however, consider this a Solomon-like compromise, with themoney being split in half between paying off student loans andsaving for retirement.

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Beginning January 1, 2019, cognizant plan sponsors will havebroader opportunities to make their 401(k) plans more attractive,albeit potentially less effective.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).