A number of 401(k) plan sponsors have asked whether hardship withdrawals can be given for COVID-19 related expenses. Under recent regulations, plans may allow hardship distributions expenses incurred due to a federally declared major disaster. The federal state of emergency declared by the President does not qualify for this purpose. However, if a participant lives or works in a state that FEMA has declared a major disaster, a hardship withdrawal may be possible. The list of states that FEMA has declared a major disaster is constantly changing. The following states are currently included: California, Iowa, Louisiana, Washington, New York, Texas, Florida, North Carolina, and New Jersey. If you want to allow hardship distributions for people in these states for COVID-19 reasons:
- Contact your record-keeper or TPA (if they approve hardships for your plan) and ask whether hardship distributions for major disasters may be "turned on" for your plan; and
- Notify us, so we can make sure your plan is properly amended when required (generally by the end of 2021).
If you have any questions, please let us know.
We are also watching the CARES Act approved last night by the Senate which has COVID-19 related hardship and loan provisions. We will provide you details on the CARES Act soon.
Stay safe.
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.
