Lorem ipsum dolor sit amet, consectetur adipiscing elit. Vivamus convallis sem tellus, vitae egestas felis vestibule ut.

Error message details.

Reuse Permissions

Request permission to republish or redistribute SHRM content and materials.

IRS Clarifies Amendment Period for Final Hardship Withdrawal Regulations

Plan operational changes still required by Jan. 1, 2020

A person holding a wallet on a desk.

The Tax Cuts and Jobs Act of 2017 made several changes to the hardship withdrawal rules for 401(k) and 403(b) retirement plans. Two years in the making, the IRS issued final regulations on Sept. 23, 2019 to implement these changes. Many of the changes are already effective, but certain mandatory provisions take effect Jan. 1, 2020.

Revenue Procedure 2020-9, which the IRS issued on Dec. 12, 2019, establishes the deadline for amending 401(k) plans to comply with the new hardship rules. Nongovernmental 403(b) plans are subject to similar rules under Revenue Procedure 2019-39, which the IRS issued on Sept. 30, 2019.


As a matter of plan design, 401(k) and 403(b) plans may allow a participant to request an in-service withdrawal if the participant has an "immediate and heavy financial need" and the withdrawal is necessary to meet that need. Historically, the hardship withdrawal regulations have included several "safe harbor" life events that were "deemed" to create an immediate and heavy financial need. These events include, among other things, medical expenses, costs related to purchasing a home, possible eviction or foreclosure, funeral expenses, certain tuition expenses, and expenses related to damage to an employee's home (a "casualty loss").

The new rules, which were first proposed in 2018, affect several technical aspects of administering a hardship withdrawal. Here are the most important changes:

  • For hardship withdrawals occurring on or after Jan. 1, 2020, plans are prohibited from suspending employee pay-deferral contributions following a hardship withdrawal. Under the previous regulation, this suspension was required for at least six months following the hardship withdrawal.
    An employee must represent in writing (which includes "electronic medium" such as an online application form) that the employee has insufficient cash or other liquid assets "reasonably available" to satisfy the need. A plan administrator may rely on that representation unless the plan administrator has actual knowledge to the contrary.
  • For plans that offer participant loans, employers are no longer required to force participants to take available loans before requesting a hardship withdrawal. This change is optional and can be made for the 2019 plan year.  If desired, however, plan sponsors may continue to require participants to take available loans before requesting a hardship distribution.
    Although the loan requirement has changed, participants who are eligible for other in-service distributions must still receive those distributions before receiving a hardship withdrawal.
  • Within 401(k) plans, the available sources of hardship distributions have been expanded to include earnings on elective deferrals as well as safe harbor matching contributions, qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), and earnings on these amounts. This change is optional and is effective for the 2019 plan year. This change generally does not apply to 403(b) plans.

Previous safe harbor events continue to apply to hardship withdrawals. However, two changes were made:

  • The IRS added a new safe harbor event for federally declared disasters. This new safe harbor, which is optional and effective for the 2019 plan year, applies if the employee incurs expenses or losses because the employee's principal residence, or principal place of employment, is in a federally declared disaster area.
  • The IRS also clarified the existing safe harbor for "casualty losses." A casualty loss is generally the expense of repairing damage to a participant's primary residence if the expense is tax-deductible under Section 165 of the Internal Revenue Code. Congress modified Section 165, however, and limited the tax deduction to losses attributable to a federally-declared disaster. In the final hardship rule, the IRS clarified that this new restriction under Section 165 does not apply to hardship withdrawal requests. For hardship withdrawal purposes, a casualty loss can occur regardless of whether the loss is attributable to a federally declared disaster.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Recommended Action Steps for 2020

Employers should work with third-party administrators and recordkeepers to do the following:

  • Ensure that no employees are subject to a suspension of elective deferrals for hardship distributions on and after Jan. 1, 2020.
  • Ensure that the plan's hardship withdrawal request forms include the new employee attestation requirement regarding lack of readily available funds to satisfy the hardship need.
  • Determine when to lift any current suspensions of employee pay deferral contributions resulting from 2019 hardship withdrawals. Some employers have already removed these suspensions, while others are removing them effective Jan. 1, 2020. Another option is to allow these 2019 suspensions to remain in place until they expire.  Employers should explain to employees the process for resuming elective deferral contributions after the suspension is removed.
  • Consider amending the plan to align with the new changes. As explained below, no amendment is immediately required, even though plans must change certain aspects of administration. Regardless of the legal deadline for amending your 401(k) or 403(b) plan, however, it's advisable to amend plans now to align with the new requirements.

Recent Changes to Plan Amendment Deadlines

Plan sponsors have additional time to amend a retirement plan whenever the amendment is required by law. However, the extended time limit typically varies depending upon several factors, including whether the employer's plan is a "pre-approved" or an "individually designed" plan.

On Dec. 12, 2019, the IRS issued Revenue Procedure 2020-9, which simplifies the deadline to amend 401(k) plans for compliance with the final hardship regulations. In short, under Revenue Procedure 2020‑9, the amendment deadline is Dec. 31, 2021 for both pre-approved and individually designed 401(k) plans. Additionally, this deadline broadly applies to all amendments that relate to a plan's hardship distribution provisions (and are effective no later than Jan. 1, 2020).

The IRS also recently issued similar guidance for 403(b) plans in Revenue Procedure 2019-39. Under this guidance, nongovernmental 403(b) plans generally have until Dec. 31, 2021 to adopt plan amendments required under the final hardship withdrawal regulations.


Although employers generally have until Dec. 31, 2021 to finalize plan amendments relating to the final hardship withdrawal rules, it is important to keep in mind the operational changes that are required by Jan. 1, 2020. In addition, many employers are amending their plans now in order to ensure alignment between the plan document and the plan's administration.

Jeffrey T. Gray, an attorney in the Grand Rapids ;Mich., office of law firm Miller Johnson, represents public and private employers in employee benefits and executive compensation matters. © 2019 Miller Johnson. All Rights Reserved. Hyperlinks added by SHRM Online.

Most Employers See No Rise in Hardship Requests

Employers that sponsor 401(k) plans that allow hardship withdrawals moved quickly last year to adopt the new, more liberal, rules. But most hadn't seen a rise in participants taking advantage of the new provisions, according to an October 2019 survey of 145 companies by the Plan Sponsor Council of America (PSCA), an employers group.

Among respondents that had adopted the new hardship provisions, most (72.6 percent) hadn't seen a change in the number of hardship withdrawals, and fewer than one-in-five (17.8 percent) noted an uptick in hardship withdrawals.

The area of most agreement among sponsors was the provision eliminating the post-withdrawal 6-month suspension of elective deferrals, with 60 percent of respondents indicating strong support for this change. 

"Pre-retirement distributions of retirement savings continues to be a matter of concern," said Hattie Greenan, PSCA director of research. "Congress' action to liberalize the requirements for hardship withdrawals is a welcome change for those who use 401(k) monies to stave off financial ruin, or cope with emergencies. However, because of the potential long-term impact of expanded hardship withdrawals, it is critical to keep a close eye on how these changes might affect retirement security."

-- SHRM Online

Related SHRM Article:

IRS Final Rule Eases 401(k) Hardship Withdrawals, Requires Amending Plans, SHRM Online, September 2019


​An organization run by AI is not a futuristic concept. Such technology is already a part of many workplaces and will continue to shape the labor market and HR. Here's how employers and employees can successfully manage generative AI and other AI-powered systems.