Simplified Safe Harbor Distributions

A provision of the Bipartisan Budget Act of 2018 simplifies the safe harbor for hardship distributions. Most plans follow the safe harbor rules for hardship distributions, although this is not required. Where a plan follows the safe harbor rules, the Internal Revenue Service will not challenge on audit whether a distribution qualifies as a hardship. It is somewhat unusual for Congress to amend a regulatory standard by statute.

To be eligible for a hardship distribution under the safe harbor, a participant must have a pressing financial need and be without the necessary resources to meet this need. The statute eliminates two of the requirements necessary to these facts:

•  Participants are no longer required to first take the maximum loan available to them under the plan  before requesting a hardship distribution, and
• After a participant takes a hardship distribution, the plan no longer must suspend the participant from making contributions for six months.

This change takes effect January 1, 2019.