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IRS Clarifies Issues Affecting Amendments for Hardship Distribution Changes



Rev. Proc. 2020-9 (Dec. 12, 2019)

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The IRS has issued a revenue procedure clarifying two issues affecting 401(k) plan amendments to comply with the September 2019 final regulations regarding hardship distributions of elective deferrals (see our Checkpoint article). While some of the regulations’ changes were discretionary, many plans must be amended to (1) remove plan provisions suspending contributions following a hardship distribution of elective deferrals, and (2) add provisions requiring participants seeking hardship distributions to make representations regarding their need for the distributions. Individually designed plans generally must adopt plan amendments correcting disqualifying provisions (including the absence of a required provision) by December 31, 2021—the end of the second calendar year that begins after the changes appeared in the 2019 Required Amendments List (see our Checkpoint article). Preapproved plans, however, generally must adopt interim amendments correcting their disqualifying provisions by the end of the plan’s remedial amendment period described in Rev. Proc. 2016-37 (see our Checkpoint article). That deadline may be extended by statute or IRS guidance. For purposes of the remedial amendment rules (regardless of plan type), a disqualifying plan provision includes provisions that are “integral to” the disqualifying provision.

Revenue Procedure 2020-9 clarifies that plan amendments can be treated as integral to a disqualifying hardship provision if they “relate to” a plan’s hardship distribution provisions and are effective no later than January 1, 2020 (the latest permissible effective date for required amendments). This is true whether or not the amendments were implemented before that date. (The final regulations allow required amendments to be implemented as early as the first day of the first plan year that begins after December 31, 2018.) The revenue procedure also adopts an extended deadline for interim amendments by preapproved plans. Those plans may adopt the interim amendments needed to comply with the final regulations, as well as all amendments integral to those amendments (as broadly defined by the revenue procedure), by December 31, 2021.

EBIA Comment: The two issues addressed in this revenue procedure were discussed in the preamble to the final hardship regulations. There, the IRS also took a broad view of the amendments that could be adopted by the same deadline as a plan’s required hardship amendment, but it couched its description of “integrally related” amendments in more complex (and limiting) language. The revenue procedure’s simpler formulation should make it easier to know which amendments can be delayed and bundled with a plan’s required hardship amendments. The revenue procedure also goes further than the preamble in its extension of the interim amendment deadline for certain hardship-related amendments, giving interim amendments for preapproved plans the same December 31, 2021 deadline as individually designed plans. For more information, see EBIA’s 401(k) Plans manual at Section XV (“Distributions: Hardship”).

Contributing Editors: EBIA Staff.

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