man meditating with money raining around him (Photo: Shutterstock)

The Bi-Partisan Budget Act of 2018, which went into effect thisyear, included provisions to make it easier for participants inqualified retirement plans to take hardship withdrawals.

Perhaps the biggest change in the liberalization of the hardshiprules was the removal of the requirement of participants to exhaustall plan loan options first, before qualifying for hardship. Otherchanges included the following:

  • Expanding the money sources eligible for hardship withdrawal toinclude matching contributions, earnings on both elective andmatching contributions, and monies from other sources such asprofit sharing and stock bonus plans
  • Expanding the circumstances for hardship distribution (i.e.what qualifies as an immediate and heavy financial need)
  • Making it easier for participants to demonstrate the need byallowing verbal representation
  • Easing the requirements for a hardship determination, whichpreviously was to demonstrate "immediate and financial burden" bynow allowing the participant to make a written or electronic(including phone recording) declaration of insufficient cash orliquid assets to satisfy a financial need

Early evidence of the impact of the rule changes was firstreported by Fidelity in May of this year. Hardship withdrawalsspiked in the first quarter for those plans which adopted thechanges, showing a 40% increase in hardships over the prior year,and a 7% drop in loans. Several large sponsors we have spoken withalso report an increase in hardship following the rule changes.

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