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January 16, 2024

Simplifying hardship distributions under SECURE 2.0 Act

Frank Bitzer

Watch the video for more on this topic.

Effective December 29, 2022, part of the changes in the SECURE 2.0 Act aims to streamline the hardship distribution process, offering benefits to plan sponsors, administrators, and participants.

One significant aspect of the SECURE 2.0 Act allows plan administrators to rely on a participant's self-certification for deemed hardship events. This marks a departure from the traditional process, providing a more straightforward and participant-friendly approach to accessing hardship distributions.

Under the new provisions, participants can self-certify that their distribution does not exceed the required amount and that no alternative means are reasonably available to meet their financial needs. Though required in writing, this certification eliminates the need for extensive documentation or third-party verification.

This streamlined approach applies not only to 401(k) plans but also extends to government 457(b) plans, addressing unforeseeable emergencies for participants in these plans. Previously, 403(b) plans had more restrictions on the types of funds available for hardship withdrawals. However, for plan years beginning after December 31, 2023, 403(b) plans align with 401(k) plans, allowing hardship withdrawals of employer contributions and historical earnings. The simplified self-certification rules are also extended to 403(b) plans.

The introduction of these streamlined hardship distribution provisions alleviates administrative burdens for plan sponsors and administrators. Participants benefit from a more accessible and efficient process, eliminating unnecessary hurdles in times of financial need.

It's worth noting that the reliance on self-certification signifies a shift toward trust in participants' honesty and accountability. While this simplification offers numerous advantages, plan sponsors and administrators must stay informed about any updates or clarifications issued by regulatory authorities.

In conclusion, the provisions of SECURE 2.0 Act related to hardship distributions present a positive shift toward a more participant-centric and efficient process. As we navigate the evolving landscape of retirement planning, these changes contribute to a smoother and more accessible experience for all stakeholders.

Stay tuned for further explorations into the intricacies of retirement planning and legislative changes that shape the future of these crucial financial instruments.

Contact your Marsh McLennan Agency retirement plan advisor for information about SECURE 2.0 Act and how it affects your organization.