Text of IRS Notice of Proposed Rulemaking: Hardship Distributions of Elective Contributions, Qualified Matching Contributions, Qualified Nonelective Contributions, and Earnings

26 pages. "This document contains proposed amendments to the regulations relating to hardship distributions from section 401(k) plans ... to reflect: [1] the enactment of [a] sections 41113 and 41114 of BBA 2018, [b] sections 826 and 827 of PPA '06, and [c] section 105(b)(1)(A) of the HEART Act; and [2] the application of the hardship distribution rules in light of the modification to the casualty loss deduction rules made by section 11044 of the TCJA....

"The proposed regulations modify the safe harbor list of expenses in current Section 1.401(k)-1(d)(3)(iii)(B) for which distributions are deemed to be made on account of an immediate and heavy financial need by: [1] adding 'primary beneficiary under the plan' as an individual for whom qualifying medical, educational, and funeral expenses may be incurred; [2] modifying the expense listed in Section 1.401(k)-1(d)(3)(iii)(B)(6) (relating to damage to a principal residence that would qualify for a casualty deduction under section 165) to provide that for this purpose the new limitations in section 165(h)(5) (added by section 11044 of the TCJA) do not apply; and [3] adding a new type of expense to the list, relating to expenses incurred as a result of certain disasters....

"Pursuant to BBA 2018 sections 41113 and 41114, the proposed regulations modify the rules for determining whether a distribution is necessary to satisfy an immediate and heavy financial need by eliminating [1] any requirement that an employee be prohibited from making elective contributions and employee contributions after receipt of a hardship distribution, and [2] any requirement to take plan loans prior to obtaining a hardship distribution.... In addition, the proposed regulations eliminate the rules in current Section 1.401(k)-1(d)(3)(iv)(B) (under which the determination of whether a distribution is necessary to satisfy a financial need is based on all the relevant facts and circumstances) and provide one general standard for determining whether a distribution is necessary....

"Pursuant to section 41114 of BBA 2018, the proposed regulations modify Section 1.401(k)-1(d)(3) to permit hardship distributions from section 401(k) plans of elective contributions, QNECs, QMACs, and earnings on these amounts, regardless of when contributed or earned....

"[T]he proposed new rules relating to a hardship distribution of elective contributions from a section 401(k) plan generally apply to section 403(b) plans. However, Code section 403(b)(11) was not amended by section 41114 of BBA 2018; therefore, income attributable to section 403(b) elective deferrals continues to be ineligible for distribution on account of hardship....

"The Treasury Department and the IRS realize that employees adversely affected by Hurricane Florence or Hurricane Michael may need expedited access to plan funds. Accordingly, the relief provided under Announcement 2017?15 is extended to similarly situated victims of Hurricanes Florence and Michael, except that the 'Incident Dates' (as defined in that announcement) are as specified by FEMA for these 2018 hurricanes, relief is provided through March 15, 2019, and any necessary amendments must be made no later than the deadline for plan amendments set forth in this preamble under Plan Amendments."
Internal Revenue Service [IRS]