Sponsors of 401(k) and 403(b) plans are on board with the IRS' new hardship withdrawal regulations, applauding one key required provision in particular: They will no longer need to suspend employee contributions for six months following hardship distributions.
Indeed, there's little plan sponsors dislike about the new regulations. Perhaps the only issue — aside from the tight window within which to implement the required rule changes — is that they have to amend their plan documents, which sponsors are generally loath to do, according to industry experts.
Large employers that use individually designed plans have a fair amount of time to file their amendments but small- and midsize employers with so-called "preapproved plans" have a much tighter window, said Michael Hadley, a partner with Davis & Harman LLP in Washington.
Large plan sponsors have two years from the release of the IRS' latest required amendments list to amend their plan documents. If the IRS releases the list mid-December, as it does every year, they will have until Dec. 31, 2021, to amend their documents. For sponsors of preapproved plans, however, the deadline could come as early as May 15, 2020, depending on factors such as the employer's tax year and whether the employer files for an extension on its tax return, according to Mr. Hadley.
The amendment deadline for preapproved plans is generally the due date of the tax return for the year in which the amendment is required to be effective, Mr. Hadley said.
Sponsors of preapproved plans, however, may be breathing a sigh of relief soon. The IRS has signaled that it will address their worries so that they won't have overly tight amendment deadlines, said Will Hansen, chief government affairs officer at the American Retirement Association in Arlington, Va.
"In the end, I think our concerns will be largely taken care of," Mr. Hansen said.