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Plan Sponsors Embrace New Hardship Withdrawal Rules, PSCA Finds

Industry Trends and Research

Plan sponsors have moved quickly to incorporate new, more liberal hardship withdrawal provisions, but that have not seen an increase in the number of participants taking advantage of them, says a new survey by the Plan Sponsor Council of America. 

The Bipartisan Budget Act of 2018 included a provision directing the Secretary of the Treasury to modify the rules to delete the six-month prohibition on contributions following a hardship distribution. In September 2019, the Treasury Department and IRS issued final regulations that broadened the definition of hardship withdrawals and reduced the penalties for taking one. 

Immediately after the final regulations were issued, the PSCA, which is part of the American Retirement Association (ARA), conducted a brief survey to assess the pace and scale of adoption of the new rules and the participant response.

The PSCA found that nearly two-thirds (65%) of respondents already have adopted the new hardship provisions. However, they found that there was no sudden rush to take withdrawals. Most (73%) reported no change in the number of hardship withdrawals since the new provisions were implemented. Fewer than one in five (18%) noted an uptick in hardship withdrawals in 2019 – but even among those that did, the vast majority (92%) are not considering any changes to their provisions at this time.

The elimination of the post-withdrawal six-month suspension of elective deferrals was the change about which there was greatest agreement – 60% called it a "wonderful idea."

Other key survey findings include:

  • About half of respondents stated that they are “okay” with the provisions allowing hardships for casualty losses associated with federal disasters.
  • More than 20% think the provision to allow hardships for casualty losses associated with federal disasters is a wonderful idea, and nearly a quarter (23%) are largely comfortable with it but remain concerned about possible implications.
  • Nearly 30% consider the requirement that participants take loans before accessing a hardship withdrawal is a bad idea or one in which the bad outweighs the good.