2019 Required Amendments List Includes Hardship Distribution Regulations

The IRS has issued its 2019 Required Amendments List (RA List) for individually designed qualified retirement plans. The list identifies only one qualification change affecting 401(k) plans: issuance of the final hardship distribution regulations. RA Lists are issued annually to identify changes in the Code’s qualification requirements that may result in disqualifying provisions and require a remedial amendment (see our Checkpoint article). (A “disqualifying provision” is a required provision that is not in the plan document, a provision in the document that does not comply with the Code’s qualification requirements, or a provision that the IRS so designates.) RA Lists are usually divided into two parts. Part A lists changes in qualification requirements that require most plans (of the relevant type) to be amended. Part B lists changes that should only require amendments for certain plans with unusual plan provisions affected by the changes. Periodic cost-of-living adjustments (COLAs) to various dollar limitations do not appear on the annual RA List but are treated as if they are included. (Many plans do not need to be amended to reflect these periodic COLAs.)

Part A of the 2019 RA List includes two items, one relating to final regulations for cash balance/hybrid defined benefit plans, and the other relating to the final hardship distribution regulations issued in October 2019 (see our Checkpoint article). The 2019 RA list describes plans requiring a hardship-related amendment as those that (1) provide for a suspension of elective deferrals or employee contributions as a condition for obtaining a hardship distribution of elective deferrals, or (2) do not require a representation from an employee who requests a hardship distribution that the employee has sufficient liquid assets reasonably available to satisfy the need. The required hardship amendments must apply to hardship distributions made on or after January 1, 2020. The hardship entry also notes that the prohibition of suspensions applies not only to the plan making the hardship distribution, but also to other qualified plans, Code § 403(b) plans, and certain eligible deferred compensation plans described in Code § 457(b). Part B of the 2019 RA list has no entries. Unlike earlier RA lists, the 2019 RA list also applies to § 403(b) individually designed plans.

EBIA Comment: This is the first RA List in four years to include any entries relating to 401(k) plans (see our Checkpoint article). Employers that took advantage of the ability, under the new hardship regulations, to apply them earlier than January 1, 2020 (with or without certain rules that were made optional for 2019), will need to be careful to make their amendments conform to their practice under the regulations’ transition rules. RA Lists do not apply to discretionary plan amendments, which generally must be adopted by the end of the plan year in which discretionary plan design or operational changes are implemented (except for certain discretionary amendments that must be adopted before they are implemented). Employers should note, however, that in the preamble to the final hardship regulations, the IRS indicated that plan provisions that are “integrally related” to a qualification requirement that has been changed in a manner that required the plan to be amended for the hardship regulations, “may be amended by the same deadline that applies to the required amendment.” Consequently, hardship amendments prepared and adopted in response to the RA list should also include those “integrally related” amendments. For more information, see EBIA’s 401(k) Plans manual at Sections IV.B (“Form and Operational Qualification Requirements”), XXVII.F (“Disqualifying Provisions and Remedial Amendments”), and XXVII.G.1 (“Extended Remedial Amendment Periods for Individually Designed Plans Resulting From a Change in Qualification Requirements”).

Contributing Editors: EBIA Staff.