On February 9, 2018, Congress passed into law the Bipartisan Budget Act of 2018 (the “Budget Act”). The Budget Act contains a number of provisions that impact qualified retirement plans. Plan sponsors should consult their advisors and/or ERISA counsel for specific questions as to how these regulations will impact their plans.
The Budget Act relaxes the rules related to hardship withdrawals for plan years beginning after December 31, 2018:
- It eliminates the requirement that a participant take all available retirement plan loans prior to requesting a hardship withdrawal;
- It eliminates the requirement that a participant’s contributions (including pre-tax, after-tax, and Roth 401(k) contributions) to his or her employer’s 401(k) plan be suspended for at least six months following the receipt of a hardship withdrawal; and
- It expands the sources of 401(k) plan accounts currently available for hardship withdrawals to include, not only elective deferral contributions and earnings on those amounts but also, qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and earnings on those amounts.
Plan sponsors wishing to adopt these new hardship withdrawal rules will need to amend their plan documents and related notices/communications accordingly.
Relief for Individuals Impacted by the California Wildfires
The Budget Act contains special disaster-related rules for the use of retirement funds by an individual whose principal place of residence was in a Presidentially-declared California wildfire disaster area between October 8, 2017, and December 31, 2017, and who incurred an economic loss due to the wildfires (a “Qualified Individual”).
- A Qualified Individual can take a qualified wildfire distribution of up to $100,000. Qualified wildfire distributions are not subject to the 10% early withdrawal penalty, are not subject to the 20% mandatory withholding that normally applies, can be recontributed over a three-year period, and will be included in the participant‘s income ratably over three years unless the participant elects otherwise.
- A Qualified Individual may borrow from his account under a qualified retirement plan the lesser of $100,000 or 100% of the individual’s vested account balance. To qualify for the higher loan limits, the loan must be taken between February 9, 2018, and December 31, 2018. Qualified Individuals who have loans outstanding are also permitted to delay loan repayments for up to one year, although interest will continue to accrue.
- A participant who took a hardship distribution between March 31, 2017, and January 15, 2018, to purchase or construct a home in the area where the California wildfires occurred (but who did not do so as a result of the wildfires) is permitted to repay such distribution if the participant was unable to actually purchase or construct the home due to the wildfires. The repayment must occur no later than June 30, 2018, and may be treated as a rollover, not subject to tax.
Plans are not required to offer this special disaster relief. Plan sponsors who wish to offer this relief to participants impacted by the California wildfires may do so immediately, but their plan document must be amended to conform the terms of the plan to the plan’s operation. The deadline for amending plans for this relief is the last day of the first plan year beginning on or after January 1, 2019 (i.e., December 31, 2019, for a calendar year plan).
Wrongful IRS Levy
Effective for taxable years beginning after December 31, 2017, the Budget Act allows an employer to permit individuals who receive retirement plan distributions to pay for a federal tax levy, that is later deemed to be invalid, to repay those distributions, thereby avoiding taxation and possible penalties.
Multiemployer Pension Plan Committee
To assist in addressing the funding issues faced by many multiemployer pension plans, the Budget Act establishes a “Joint Select Committee on Solvency of Multiemployer Pension Plans.” This committee will be responsible for providing recommendations and legislative language by the end of November 2018 that will significantly improve the solvency of multiemployer pension plans and the multiemployer plan insurance program overseen by the Pension Benefit Guarantee Corporation.
If you have any questions, please contact Stephanie Kramer, Supervisor with McKonly & Asbury at email@example.com.