Hardship Distributions During the COVID-19 Outbreak
As the COVID-19 outbreak continues, retirement plan sponsors will likely receive questions from employees about ways in which they can access funds in their retirement plan accounts. While we wait for any potential Congressional action to ease access to retirement plan accounts, we look to the hardship distribution rules that apply now regardless of Congressional relief. Hardship distributions are one way an employee can receive an in-service distribution of elective deferral contributions (and, depending on the plan provisions, other types of contributions) from their accounts, provided the employee has an immediate and heavy financial need and the distribution is necessary to meet that need.
The IRS’s recently issued final regulations added a new type of safe harbor hardship distribution event, for losses related to a federally-declared disaster. Under the final regulations, an employee may be deemed to have an immediate and heavy financial need when the employee incurs expenses and losses (including loss of income) as a result of a disaster declared by the Federal Emergency Management Agency (“FEMA”), provided the employee’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the particular disaster. Historically, the IRS announced similar relief on a piecemeal basis (for example, allowing certain hardship distributions for Hurricane Maria and the California wildfires in 2017).
Continue reading “Benefit Plan FAQs on COVID-19 Part 5”
