When the Bipartisan Budget Act of 2018 (BBA of 2018) was signed into law in February of 2018, sweeping changes to the process of obtaining hardship distributions accompanied it. These changes were not required to take effect until January 1, 2020.
While the BBA of 2018 initiated these hardship distribution changes, the IRS did not issue its final regulations until 9/23/2019.
See the IRS publication of these changes here.
These final regulations made by the IRS mandate implementation of new hardship distribution rules for all hardship distributions beginning January 1, 2020, but they did not specify the date by which plans are required to amend their plan document. As outlined in Revenue Procedure 2016-37 (RP 2016-37), which sets forth amendment deadlines for disqualifying provisions of individually designed and pre-approved plans, the amendment deadline for legally mandated amendments is the end of the second calendar year that begins after the required amendments list is issued. However, for pre-approved plans, the amendment deadline for such amendments depends on the type of entity sponsoring the plan as well as the period used for the plan year.
In an effort to streamline the implementation of these rules and to reduce the consequential administrative costs borne by plan sponsors, the IRS extended the amendment deadline for hardship changes to December 31, 2021 via RP 2020-9 for individually designed and pre-approved plans alike. RP 2020-9 was issued on December 12, 2019.
It is worth noting that while the amendment deadline was extended to December 31, 2021, the amendment must retrospectively state that the hardship changes take effect no later than January 1, 2020. This extension can create a timing difference whereby plans administer hardship distributions contrary to their current plan documents. To reduce confusion related to operational and documented plan provisions, we encourage plan sponsors to amend their plan documents as early as possible.
Certain BBA of 2018 hardship distribution changes are required to be implemented for hardship distributions initiated no later than December 31, 2019. However, the deadline to amend plan documents to feature these revised provisions is December 31, 2021 for pre-approved and individually designed plans alike.