The Internal Revenue Service today announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions
to victims of Hurricane Irma and members of their families.
Plan sponsors should note that the law says participants may withdraw retirement savings only under limited circumstances, including a death, disability, termination of employment, retirement and, as discussed above, if the plan permits loans or hardship distributions
from an EBP are intended to be a last resort for participants.
Failure to handle financial hardship distributions
properly, including cessation of deferrals for the balance of the plan year as required;
According to PLANSPONSOR's 2014 Plan Benchmarking Report, most 401(k) plans include a provision for participants to take loans or hardship distributions
(see "Loans vs.
These include required minimum distributions (RMDs), hardship distributions
, corrective distributions of excess deferrals, dividends from employer securities and deemed distributions (Q&A 2).
6 million participants and found that nearly 100% of hardship distributions
were tied to situations to save a home.
are permitted to the extent the deemed hardship requirements described in Treasury regulation section 1.
Examples of such discretionary determinations are authorizing plan-to-plan transfers, processing distributions, satisfying applicable qualified joint and survivor annuity requirements, and making determinations regarding hardship distributions
, qualified domestic relations orders (QDROs), and eligibility for or enforcement of loans.
Higher employee contributions are the draw of 401(k)s, as are the plans' flexibility Employee contributions rose to $15,500, or $20,500 for workers 50 and older, in 2007 and plans allow for delayed vesting, eligibility requirements, hardship distributions
and employer contributions based on profit sharing or other formulas.
Such capabilities make the plan attractive for younger executive participants and help overcome stricter 409A limitations on hardship distributions
distributable amount: Typically an employee's distributable amount, for purposes of a hardship distribution
, is limited to the total of his elective deferrals, less any prior hardship distributions