IRS Updates Operational Compliance List (OCL) for 2019 Changes

In an effort to keep businesses, accountants, lawyers, and plan fiduciaries informed on policies, the IRS regularly publishes updates that are relevant for the coming year. The 2019 changes to the Operational Compliance List (OCL) were recently published, mainly focusing on changes relating to hardship distributions. The update also extended hurricane relief for victims of the 2018 hurricane season.

Hardship Distributions

Hardship withdrawals are made from an employee’s 401(k) plan when there is a purported immediate financial need. This includes impending foreclosure, purchase of a primary residence, education expenses, funeral expenses, medical expenses, and costs of repairs or improvements to a primary residence. While plans are not required to offer hardship distributions to plan participants, many choose to do so.

The 2018 budget contained two sections focused on hardship distributions.  The first stipulates that distributions be treated as a hardship distribution even if the employee does not take advantage of available plan loans first, as many plans previously required. The second provision expands the types of contributions and earnings that are available when an employee needs to take a hardship distribution.

The budget legislation also requires the IRS to eliminate the requirement by which plan contributions must be suspended for six months if the distribution is deemed a hardship distribution. This change allows individual plan participants to withdraw funds from their 401(k) without first having to take out a personal loan, eliminating other requirements and freeing up the funds for people to use without complication.

In response to this legislation, the IRS has issued a proposed regulation that prohibits plans from suspending contributions after a hardship distribution. This regulation also revises the list of expenses that are deemed safe harbor financial hardships that qualify under these distribution rules. These regulations apply to the plan year beginning in 2019, but they also give plans flexibility on how to apply the regulations to plans where contributions have already been suspended due to a hardship distribution.

Relief for Hurricane Victims

Individuals who were impacted by 2018 hurricanes Florence and Michael have continued access to relief through March 15, 2019. This relief includes access to retirement plans to withdraw funds in order to meet the needs of rebuilding and other hurricane-related expenses.

paying attention to new regulations coming through the legislature to interacting with different interest groups as the departments propose regulations, the attorneys on our team work hard to understand the entire benefits legal landscape and stay ready to keep our clients in compliance. The team at Hall Benefits Law works with businesses nationwide to implement and update retirement plans, compliance processes, and handle unique benefits legal compliance matters. Reach out today by calling 678-439-6236, or visit the Hall Benefits Law website.