Even as lawmakers loosened restrictions on hardship withdrawals for retirement plan participants, defined contribution plan executives and their service providers are continuing to look for ways to reduce the effects of loans and withdrawals on participants' projected retirement incomes.
Signed by President Donald Trump on Feb. 9, the 2018 Bipartisan Budget Act eased restrictions on hardship withdrawals for retirement plan participants.
The measure removed the requirement that participants who take hardship withdrawals cannot contribute to their retirement plans for six months and it eliminated the requirement that participants have to take a loan before taking a hardship withdrawal from their contributions to their accounts.
It also lifted restrictions on taking hardship withdrawals from qualified non-elective employer contributions, qualified matching contributions, and any earnings resulting from both the employer and employee contributions.
The issue of plan leakage through loans and withdrawals is not a new problem.
However, the new provisions in the federal budget law, which are optional provisions, have given plan executives another reason to examine the issue.
Based on an analysis of 15 million participants among clients of Fidelity Investments, 2.3% of participants made hardship withdrawals in 2017. Over the same period, 10% of participants initiated loans, and 21% had loans outstanding, showed data provided by Fidelity spokesman Michael Shamrell. For 2012, Fidelity reported slightly higher percentages — 2.4% of 11.9 million participants analyzed made hardship withdrawals, 10.9% initiated loans and 22.8% had loans outstanding.