The IRS has issued guidance to clarify which amendments are integral to a plan provision that fails to satisfy the qualification requirements due to changes made by the final hardship distribution regulations. All plan amendments related to a plan’s hardship distribution provisions effective no later than January 1, 2020, are treated as integral to the required modifications. The guidance also extends the deadline for pre-approved plans to adopt an interim amendment relating to those regulations.

BackgroundThe IRS issued hardship distribution regulations in September 2019 to reflect the statutory changes affecting Code Sec. 401(k) and 401(m) plans and involve participants in, beneficiaries of, employers maintaining, and administrators of plans that include cash or deferred arrangements or provide for the employee or matching contributions.

The plan amendments required under the final regulations include:

  • an amendment to remove a plan provision suspending an employee’s contributions following a hardship distribution of elective deferrals; and
  • an amendment requiring an employee’s representation relating to their need for a hardship distribution if the plan does not already provide for such a representation.

 

Integrally related changes. A plan amendment modifying a plan’s hardship distribution provisions that are effective no later than the required amendment will be treated as amending a condition that is integrally related to a qualification requirement that has changed. These include:

  • changes related to casualty losses;
  • the addition of the new safe harbor expense for expenses incurred in a federally declared disaster; and
  • extension of relief to victims of Hurricanes Florence and Michael.

Deadlines for plan amendments. The IRS now clarifies that all plan amendments related to a plan’s hardship distribution provisions that are effective no later than January 1, 2020, are treated as integral to the required modifications. This treatment applies even if the necessary amendments are implemented earlier than for hardship distributions made on or after January 1, 2020.

An interim amendment is timely adopted if it is adopted by the end of the remedial amendment period. The deadline for pre-approved plans adopting interim amendments integral to those amendments is extended to December 31, 2021.

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