United States: The Budget Act Makes Some Surprising Changes To Benefit Plans

Summary

On February 9, 2018, President Trump signed a bipartisan budget deal into law, effectively extending federal funding through March 23, 2018. The act includes multiple provisions affecting employee benefit plans, including relaxed hardship withdrawal rules and relief for individuals affected by the California wildfires.

In Depth

On Friday, February 9, 2018, President Trump signed the Bipartisan Budget Act of 2018 (Budget Act) into law, ending a nine-hour funding gap created when the legislation reopening the federal government after last month's shutdown expired. The Budget Act, which extends funding for the federal government until March 23, 2018, also includes several important provisions affecting employer-sponsored retirement plans.

What Does the Budget Act Do?

The Budget Act relaxes certain hardship withdrawal rules. The Budget Act makes three key changes that relax the rules that apply to participants requesting hardship withdrawals.

  • It eliminates the requirement that a participant's contributions (including pre-tax, after-tax and Roth 401(k) contributions) to his or her employer's 401(k) plan be suspended for at least six months following the receipt of a hardship withdrawal.
  • It eliminates the requirement that a participant take all available retirement plan loans before receiving a hardship distribution.
  • It expands the sources of 401(k) plan accounts currently available for hardship withdrawals to include not only elective deferral contributions, but also qualified non-elective contributions (QNECs), qualified matching contributions (QMACs), and earnings on those amounts, together with earnings on elective deferrals.

These changes are effective for plan years beginning after December 31, 2018.

The Budget Act provides tax relief for individuals impacted by the California wildfires. The Budget Act also provides special tax relief for certain retirement plan and IRA distributions taken on or after October 8, 2017, and before January 1, 2019, by an individual whose primary residence was located in the federally declared California wildfire disaster area between October 8, 2017, and December 31, 2017, and who sustained economic loss as a result of the wildfires. The relief provided by the Budget Act is similar to the retirement-plan-related disaster relief enacted to benefit individuals impacted by last fall's hurricanes. For "qualified wildfire distributions" this means that:

  • It waives the 10 percent early distribution penalty tax on in-service withdrawals and distributions.
  • It permits income inclusion to occur ratably over three years, beginning with the year the wildfire distribution or withdrawal is received. This allows an individual to spread out his or her tax payments on qualified wildfire withdrawals or distributions over three years.
  • It exempts distributions from the 20 percent mandatory withholding that normally applies.
  • It permits amounts distributed or withdrawn to be repaid within three years. If repaid, the withdrawal or distribution will be treated as a rollover and will not be subject to income tax.

This special tax treatment only applies to qualified wildfire distributions up to $100,000 (reduced by other qualified disaster distributions). In addition, the Budget Act also:

  • Permits individuals who received a hardship distribution between March 31, 2017, and January 15, 2018, for the purpose of purchasing or constructing a principal residence within the wildfire disaster area, but who did not do so as a result of the wildfires, to repay the distribution on or before June 30, 2018. If repaid, it will be treated as a rollover and will not be subject to tax.
  • Doubles the maximum amount an individual may borrow from a 401(k) plan or other tax-qualified retirement plan to the lesser of $100,000 or 100 percent of a participant's benefit (reduced by prior loan balances). To qualify for the higher loan limits, the loan must be taken between February 9, 2018, and December 31, 2018.
  • Allows loan payments due before 2019 to be delayed for up to one year, though interest will continue to accrue.

For purposes of implementing this and other recent disaster relief, the Internal Revenue Service has informally indicated that plan sponsors may rely on the regulatory guidance issued in connection with similar disaster relief provided to benefit victims of Hurricane Katrina.

The Budget Act permits distributions pursuant to invalid federal tax levies to be repaid. The Budget Act allows an employer to permit individuals who receive retirement plan distributions to pay for a federal tax levy that is later deemed to be invalid, to repay those distributions, thereby avoiding taxation and possible penalties. This change is effective for taxable years beginning after December 31, 2017.

The Budget Act establishes a committee to study multiemployer pension plan solvency. In an effort to address the funding crises faced by many multiemployer pension plans, the Budget Act also establishes a Congressional committee referred to as the "Joint Select Committee on Solvency of Multiemployer Pension Plans." The goal of this committee is to improve the solvency of multiemployer pension plans and improve the solvency of the multiemployer plan insurance program overseen by the Pension Benefit Guaranty Corporation. The Budget Act directs the committee to issue a report with its recommendations for legislative action by no later than November 30, 2018.

What Are the Next Steps?

If the plan sponsor of a tax-qualified retirement plan wants to take advantage of any of the relief provided by the Budget Act, the plan sponsor will need to ensure that the plan is operated in accordance with the applicable provision of the new law (when it becomes effective). This will likely require some coordination with the plan's recordkeeper to discuss any changes to the plan's existing rules. In addition, the plan sponsor will likely need to amend its plan document and update related plan notices and communications (including, for example, the plan's summary plan description) accordingly. 

The Budget Act Makes Some Surprising Changes To Benefit Plans

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions