Tuesday, June 26, 2018

The Bipartisan Budget Act of 2018

The Bipartisan Budget Act of 2018 (BBA) became law in January, and it contained unexpected changes to retirement plan rules. Because these new rules came on the heels of other changes made by the Tax Cuts and Jobs Act of 2017, they may have passed under your radar. In case they have, let’s look at a few of the changes that are most likely to affect your plan so that you may better assess their impact.

Hardship Distributions
BBA changes the rules governing hardship distributions. Effective for plan years beginning after December 31, 2018, when your employees request a hardship distribution, they

  • no longer need to take a plan loan first,
  • no longer need to stop deferring for six months following the distribution, and
  • may also distribute QNECs and QMACs (with earnings) and the earnings on deferrals.

If your plan document allows for hardships, it will need to be amended to reflect these changes. Rest assured, we will notify you when action will need to be taken.

California Wildfires
BBA provides relief to victims of recent wildfires in California. This relief is in addition to the relief already provided by agencies such as the IRS and DOL.

Distributions of up to $100,000 may be taken by your eligible employees, and these are not subject to mandatory federal withholding or an early distribution penalty. These distributions may also be repaid within three years—or taxed ratably over three years if not repaid.

In addition, the maximum loan amount allowed for your affected employees is increased to the lesser of $100,000 or 100% of their vested balance. A formal amendment to allow these distributions is not required at this time if your plan is using our plan document; however, if you decide to allow these distributions, you must notify participants of their rights under the plan, and document how you are operating your plan*. The relief applies to distributions made on or after October 8, 2017, but before January 1, 2019.

The changes that BBA introduces may create some additional administrative work for you, such as amending your plan documents, but they are generally favorable for your employees. You’ll want to review administrative procedures to ensure they have been properly adjusted and documented and maintain close contact with your client services team to address specific document or recordkeeping questions. Stay tuned for the latest on all retirement legislation and other developments that may affect your plan.

* If you do not use our plan document, you should consult with your provider for any plan document or documentation requirements.