FAQ 1086: Hardship Withdrawal--Changes for 2019


What system changes have been made to accommodate the new hardship rules for 2019?


Late in 2018 the IRS released proposed amendments to the hardship distribution regulations applicable to 401k plans, applicable to plan years beginning after 12/31/2018. This includes the option for plan sponsors to include other sources in the hardship basis as well as earnings on those sources. Earnings on pre-tax deferrals can also be included in a participant's hardship basis for 401(k) plans. For details, please refer to the ASC Alert No. 18-03 issued in November 2018.

The following system enhancements have been made to accommodate these changes (Patch O):

A new form has been added to Plan Specifications under Sources: The Source Definition screen (SORCDEF). It includes coding for:
1. 'Sources Available for Hardship', 'Sources Available for Withdrawal' and 'Earning Available for Hardship'. The first two are existing options, but have been moved from the DAILYVRU screen to the SORCDEF screen.
2. 'Sources Available for Hardship' dictate which sources are included when determining and accumulating a participant's hardship basis.
3. 'Earnings Available for Hardship' dictate which sources earnings are included in a participant's hardship basis.
4. 'Sources Available for Withdrawal' dictate which sources are available for in-service withdrawals.

Basis Calculation:

If a plan selects to exclude earnings for any given source:
The basis calculation will begin with the Inception-to-Date fields on the Contribution screen in Employee (by source), and add to that any subsequent contributions in the current plan year (transactions and value/cost records).

If a plan selects to include earnings for any given source:
The hardship basis becomes the most recently determined (i.e. current) value of the participant's account for each selected source.

Additional Notes:

The 'Available for Hardship Withdrawal field in Employee will be updated during an annual update, but otherwise will not be used.
Keep in mind these changes generally apply to 403(b) plans, although earnings can never be included for deferrals. As such, if the Plan Type (PLANTYPE) in Plan Specs is a '5' to indicate a 403(b), earnings will not be included when processing a Hardship withdrawal regardless of the coding on the SORCDEF screen.