Now that two weeks have passed since the Internal Revenue Service released its proposed hardship regulations, most defined contribution plan sponsors have determined which changes to their plan's hardship programs (if any) will be effective beginning January 1, 2019 (for calendar year plans), and which changes will be postponed. One of the changes that we see being almost universally adopted as early as possible is the elimination of the six-month suspension of contributions following a hardship withdrawal. However, there are two consequences of this removal of the suspension requirement that are sometimes overlooked:

  • Communication with Participants. Plans have different procedures to end hardship suspensions—some automatically reinstate contribution elections and others require participants to make new elections following the suspension. In either case, a plan administrator removing the suspension before the six months would otherwise elapse (e.g., January 1, 2019) should consider letting participants know about the change before the end of this year so that the participants do not miss out on making a new deferral election (or are not surprised when a deferral election is automatically reinstated). But even in cases where no change is being made to existing hardships, if the plan is eliminating the suspension for new hardships taken in 2019, the plan administrator should consider notifying participants who apply for hardship withdrawals during these final weeks of 2018 of the imminent change in the plan’s hardship withdrawal rules. In addition, as many plans have outsourced management of the hardship withdrawal program to a recordkeeper or other manager, plan administrators are encouraged to discuss a communication strategy with their recordkeepers or other managers (e.g., affirmatively reaching out to participants, including a description of the change with hardship request forms).
  • Nonqualified Plans. Often overlooked in discussions on eliminating the suspension requirement following hardship withdrawals is the impact this change has on nonqualified deferred compensation plans. By way of background, the suspension requirements in the current hardship regulations (before modification by the proposed regulations) require that participants be suspended from making contributions into all plans sponsored by the plan sponsor, which includes nonqualified plans. In order to accommodate this requirement, the applicable Treasury Regulations governing nonqualified deferred compensation plans subject to Internal Revenue Code Section 409A expressly allow a plan to provide for the cancellation of an otherwise irrevocable nonqualified plan deferral election following a hardship withdrawal. Some nonqualified deferred compensation plans are drafted to provide for the cancellation of a deferral election only if such cancellation is required under the rules governing the defined contribution plan. Other nonqualified deferred compensation plans mandate the cancellation of a deferral election following any hardship withdrawal, regardless of the circumstances. The proposed hardship regulations were silent as to whether a nonqualified deferred compensation plan can continue to cancel deferral elections following a hardship withdrawal. Considering that effective January 1, 2019, suspensions following hardship withdrawals will no longer be required, plan sponsors with nonqualified plans may wish to review the suspension language in their nonqualified deferred compensation plans to determine whether any changes need to be made in light of the proposed regulations.

If you have any questions about these changes or what they mean to your plans, please feel free to reach out the authors or your Morgan Lewis contact.

Join Morgan Lewis this month for these programs on a variety of topics in employee benefits and executive compensation.

We’d also encourage you to attend the firm’s Global Public Company Academy series.

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With 2018 coming to a close, retirement plan sponsors should make sure they have addressed any required year-end plan amendments, are preparing any required year-end participant notices, and are looking ahead to any changes in 2019 that may impact their plans. This post focuses on the 2019 changes, while Part 1: Closing Out 2018 concentrated on 2018 year-end obligations.

As 2018 comes to a close, it’s time for retirement plan sponsors to make sure they have addressed any required year-end plan amendments, are preparing any required year-end participant notices, and are looking ahead to any changes in 2019 that may impact their plans. This Part 1 focuses on the 2018 year-end obligations, while the forthcoming Part 2: Getting Ready for 2019 will concentrate on changes for next year.

The US Internal Revenue Service has released proposed regulations requiring retirement plans to eliminate the six-month suspension for hardship withdrawals made on and after January 1, 2020, with the option to eliminate it earlier, and providing important clarifications for plan sponsors on other hardship requirements. Please see our LawFlash for more information about these proposed regulations, including next steps. If you have questions about the proposed regulations, please feel free to reach out to the authors or your Morgan Lewis contact.

The 18 newly elected attorneys general could affect federal and state cooperation on high-profile issues, as well as continue partisan litigation. For an analysis of the results of the 2018 state attorneys general elections, please see Morgan Lewis Consulting’s State Attorneys General Post-Election Report 2018.

Drafting and negotiating data protection provisions in services agreements is critical, but it can also be one of the trickier and more time-consuming aspects of the contracting process. Tech & Sourcing @ Morgan Lewis addresses data safeguards in services agreements in this comprehensive four-part series: Part 1, Part 2, Part 3, and Part 4. If you have questions on how to best protect data in your service provider relationships, please feel free to reach out to the author or your Morgan Lewis contact.

Join Morgan Lewis this month for these programs on a variety of topics in employee benefits and executive compensation.

Congratulations to our employee benefits practice for being recognized as Law Firm of the Year in the Employee Benefits (ERISA Law) category by the US News & World Report– Best Lawyers Best Law Firms. The Law Firm of the Year distinction is awarded to only one law firm in each practice area nationwide. The rankings are determined by evaluating client, lawyer, and peer review.

Additional congratulations to Morgan Lewis’s securities regulation practice for also being named Law Firm of the Year in their subsequent category, and to the 256 practice areas named as leading law firms across national and metropolitan categories. Find more information via our firm press release.

With the economy humming along and unemployment at historic lows, it seems a strange time for a blog post about severance plans. This is the ideal time, however, to start planning for the next phase of the business cycle and the inevitable reductions in workforce that will follow. In connection with this planning, we wanted to remind our readers of the numerous advantages of adopting an ERISA-compliant severance plan. While many employers think they do not have an ERISA-covered plan—because it is not written or is not distributed to employees—they may in fact have a de facto plan if they have a routine policy for providing severance benefits that requires ongoing administrative discretion. Don’t panic: ERISA coverage is generally a good thing.