The process of making hardship distributions for 401(k), 403(b), and 457(b) plans has been simplified with the enactment of the SECURE 2.0 Act in December 2022. This voluntary change will take effect for plan years that start after December 31, 2022.
Under the previous rules, plan administrators were responsible for obtaining evidence from the participant that the distribution was for an immediate and heavy financial need. Starting in 2023, under the SECURE 2.0 Act, plan administrators can rely on a participant’s self-certification of their financial need (unless evidence proves otherwise). The plan administrator should obtain proof of self-certification which includes participant representation that the distribution is for an immediate and heavy financial need and that the amount requested does not exceed the amount required to satisfy the financial need. Plan sponsors should confirm with their rerecord keeper or third-party administrator that the self-certification is retained as part of the hardship distribution process.
The IRS is expected to issue further guidance on the new rules under the SECURE 2.0 Act. Plan administrators should review their policies and procedures to avoid potential compliance issues.
Our ERISA professionals can help ensure your employee benefit plans are cost-effective and support your business objectives while complying with Department of Labor, IRS, and ERISA rules and regulations. Contact our Los Angeles, Long Beach, or Orange County office to learn more.