Final Hardship Distribution Regulations and Proposed Electronic Delivery Regulations

December 31, 2019
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Treasury Issues Final Hardship Distribution Regulations

The Department of Treasury issued final hardship distribution regulations that generally became effective with the 2019 plan year for Union Bank & Trust Company (“Union Bank”) retirement plan clients.  The new hardship distribution rules include the following:

  • Elimination of 6-Month Deferral Suspension Period.  A participant is no longer prohibited from making elective deferrals for six months following a hardship distribution.
  • Elimination of “Loan First” Requirement.  A participant is no longer required to take a plan loan before receiving a hardship distribution.
  • Hardship Distributions from Safe Harbor Account.  Participants are now permitted, if a proper amendment is adopted, to receive a hardship distribution from their safe harbor contribution accounts.
  • Change in Casualty Loss Event.  A hardship distribution can be made for a casualty loss even if the loss is not due  to a federally declared disaster.
  • New Hardship Distribution Event.  A new hardship distribution reason has been added, allowing a participant to receive a hardship distribution for expenses and losses due to a federally declared disaster.  This is different than the casualty loss event discussed above.
  • Earnings on Deferrals Eligible for Hardship Distribution.  A participant can now receive a distribution from his/her elective deferral earnings.  Previously, participants could not receive a hardship distribution attributable to such earnings.
  • Participant Certification.  A participant, before receiving a hardship distribution, must certify he/she has insufficient cash or other liquid assets reasonably available to meet the hardship.  This provision is effective January 1, 2020.  Union Bank clients with an inventory of hardship distribution election forms should not use them on or after January 1, 2020, and contact Union Bank for a revised form.

Department of Labor Issues Proposed Electronic Delivery Regulations

The Department of Labor (“DOL”) issued proposed regulations in October that address the electronic delivery of retirement plan notices required by ERISA.  The regulations, however, cannot be relied upon until finalized.

The proposed regulations adopt a “notice and access” framework.  This would allow plan administrators to post required notices on a website after providing an electronic notice, explaining the availability of the notices on the website.

The electronic delivery method would apply to “covered individuals.”  This includes participants who provide an e-mail address or a smartphone number, as well as any participant for whom the employer assigns an e-mail address.

The plan administrator would be required to furnish to participants: (a) a “Notice of Internet Availability,” explaining that a specific notice is available on the website; and (b) an initial notice, in paper form, generally explaining that notices will be posted on the website.  Finally, participants would be able to elect out of electronic delivery and/or request that notices be provided in paper form.

Union Bank will keep you updated as the DOL is expected to issue final electronic delivery regulations in 2020.

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