2019 changes to the hardship withdrawal rules

Change impacting 401(k) and 403(b) plan hardship withdrawals with suggested best practices and actions for plan sponsors.

There have been several recent legislative changes, most notably the Tax Cuts and Jobs Act of 2017 (“Tax Cuts Act”) and the Bipartisan Budget Act of 2018 (“Budget Act”). These changes can impact certain elements of 401(k), 403(b) and other retirement plans, as well as numerous health & welfare benefits. This isn’t easy to follow so we summarized the key changes and effective date, and the action that Fidelity has taken to implement them in this helpful table. The changes to 401(k) and 403(b) plan hardship withdrawal requirements under the Budget Act will have the most significant impact. That being the case, the focus is on the changes to the hardship withdrawal requirements, our current action, and suggested best practices and plan sponsor action.

What is changing

The Budget Act made several changes to the hardship withdrawal rules that will become effective on the first day of the plan year that begins in 2019. The legislation:

Amends Section 401(k) of the Internal Revenue Code to allow distributions of qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), and earnings on elective deferral contributions, QNECs and QMACs (these changes will not apply to 403(b) plans unless corrective legislation is enacted) as a hardship withdrawal.

Directs the Treasury to update its 401(k) safe harbor regulations to remove the required six month suspension of deferral and employee contributions after receipt of a hardship withdrawal.

Amends Section 401(k) of the Internal Revenue Code to allow hardship withdrawals without regard to whether participants have first obtained available plan loans.

The second and third changes will also impact 403(b) plans using the 401(k) plan safe harbor test. None of these changes impact the rules for unforeseeable emergency withdrawals from 457(b) plans.

The IRS issued safe harbor hardship requirements in their 401(k) plan regulations and most plan sponsors rely on them because of the objective criteria. Plan sponsors could instead adopt the facts and circumstances test but it is more administratively burdensome and would not be available for plans using a pre-approved plan document like the Fidelity Volume Submitter Plan document. The second and third changes described above impact key elements of the safe harbor for determining whether a plan distribution is necessary to satisfy a participant’s immediate and heavy financial need. For that reason, it is imperative that the IRS promptly communicate its views on the potential impact of the changes on the safe harbor determination.

Fidelity action

We’ve listened and heard a number of questions raised by plan sponsors such as you about the changes to the safe harbor hardship withdrawal requirements, including:

Will a plan sponsor be considered as utilizing the safe harbor determination if it keeps the six month suspension of deferral contributions?

Will any IRS guidance impose any new requirements?

Must QMAC and QNEC sources be made available for hardship withdrawals?

Fidelity’s Public Policy Group has brought up some of these and other similar questions to IRS officials but the IRS had indicated that they need more time to review them before they will issue any formal guidance. Additionally, we’ve been working with industry trade groups on these issues and they have submitted comments to the IRS requesting clarification.

Best practices

We know that plan sponsors like you are anxious to make some decisions for their plans. We do not have the luxury of waiting until the IRS issues official guidance because these changes are effective January 1, 2019 for plans with a calendar year-end, which are relying on the safe harbor for hardship withdrawals. We have identified what we feel are the best practices for 401(k) and 403(b) plan sponsors based solely on the provisions in the Budget Act until the IRS issues official guidance. Fidelity is taking action now to prepare for the deployment of these best practices. We want to make it clear that this is not intended to be legal advice but rather best practices for plan administration.

Eliminate the requirement that a participant first obtain a plan loan before requesting a hardship withdrawal.

Eliminate the requirement for a six month suspension of deferral contributions after receipt of a hardship withdrawal.

Do not allow a participant to request a hardship withdrawal of QNECs and/or QMACs and associated earnings. (This does not apply to 403(b) plans until there is a technical corrections bill.)

Allow a participant to request a hardship withdrawal of earnings on elective deferral contributions for 401(k) plans. This does not apply to 403(b) plans until there is a technical corrections bill.

Plan sponsors should confer with their benefits counsel to make their own determination about which changes are appropriate for their plan. Plan documents may need to be amended to reflect any changes and we will communicate the applicable action for plan sponsors using the Fidelity’s Volume Submitter Plan document.

Plan sponsor action

We’ve been actively reviewing the administrative and operational impact of the hardship withdrawal changes to determine the impact on our systems, processes, procedures and plan sponsor and participant communication material. We will reach out to you, the plan sponsor, later this year to identify next steps and will keep you posted on any developments.


Fidelity Investments Institutional Operations Company, Inc., 245 Summer St, Boston, MA 02210.

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