IRS Releases Much-Anticipated Proposed Regulations Clarifying Hardship Distribution Rules

The IRS recently released Proposed Regulations that provide much-anticipated guidance with regard to recent hardship distribution changes, which resulted due to: (1) changes made by the Bipartisan Budget Act of 2018 (the "Budget Act"); (2) changes made by the 2018 Tax Cuts and Jobs Act (the "Tax Act"); and (3) recent disaster relief guidance. The Proposed Regulations also expand upon the recent statutory changes.

Six-Month Elective Deferral Suspensions

Currently, under the "safe harbor" hardship distribution rules, a participant who takes a hardship distribution is prohibited from making future contributions to the plan (and all other employer-sponsored plans) for six months. The Budget Act made this requirement optional. As such, a plan sponsor can amend its plan to remove the "suspension requirement" beginning after December 31, 2018.