The Bipartisan Budget Act of 2018 (H.R. 1892) was signed into law on Feb. 9, 2018. The Budget Act makes several changes to retirement plan rules, both now and in the near future.
Current rule changes
Section 20102: California Wildfire Disaster Victims: Distributions of up to $100,000 from an eligible retirement plan (e.g., a qualified plan, 403(b) plan or 457(b) plan) are allowed on or after Oct. 8, 2017, and before Jan. 1, 2019, without being subject to a 10 percent early withdrawal penalty. This rule applies to individuals who sustained losses to a home in a California wildfire disaster area (see below). The home must have been a person’s “principal place of abode” at some time between Oct. 8, 2017, and Dec. 31, 2017. These distributions may be repaid to the eligible retirement plan at any time within three years and essentially treated as rollover contributions.
The following California counties are all included in the wildfire disaster area: Butte, Lake, Los Angeles, Mendocino, Napa, Nevada, Orange, San Diego, Santa Barbara, Solano, Sonoma, Ventura and Yuba. All of these counties were declared eligible for individual assistance and/or public assistance by the Federal Emergency Management Agency (FEMA).
Also, hardship distributions that were received by a participant after March 31, 2017, and before Jan. 15, 2018, to buy or build a home in a California wildfire disaster area — but which homes could not be bought or built on account of the wildfires — may be repaid to the qualified plan or 403(b) plan, as applicable. The repayment may be made at any time from Oct. 8, 2017, through June 30, 2018.
Further, the maximum loan available to affected individuals under a qualified plan, a 403(b) plan or a governmental plan (whether or not qualified) is — from Feb. 9, 2018, through Dec. 31, 2018 — increased to $100,000 instead of $50,000. And, finally, with respect to any loans outstanding on or after Oct. 8, 2017, any repayment on the loan due between Oct. 8, 2017, and Dec. 31, 2018, is delayed for one year.
If a plan desires to implement these rule changes, they can be put into effect now, although the plans can be retroactively amended to reflect those changes at any time until the last day of the first plan year beginning on or after Jan. 1, 2019 (or such later date as announced by the IRS).
Section 41104: Tax Levy Return Rollovers: The IRS can levy a person’s assets in an eligible retirement plan (e.g., a qualified plan, 403(b) plan or 457(b) plan) to satisfy a federal tax lien. In some circumstances, such as a premature or wrongful levy, the IRS will return the property to the person under Code Section 6343. The amount returned to the individual by the IRS, plus interest at the overpayment rate under Section 6621, can now be contributed by the individual: (1) back into the retirement plan, if permitted by the plan; or (2) into an individual retirement plan. The amount is treated as a rollover, and it must be contributed no later than the due date (excluding extensions) for filing taxes for the year in which the amount was returned by the IRS. The rule applies to certain returns of levied property beginning after Dec. 31, 2017. A plan wishing to permit such contributions will need to be amended accordingly.
Future rule changes
Section 41113: Elimination of 6-Month Post-Hardship Ban on Contributions: The Budget Act orders the Secretary of the Treasury to modify Treasury Regulation 1.401(k)-1(d)(3)(iv)(E) by deleting the six-month prohibition on contributions after taking a hardship withdrawal. The revised regulations will apply to 401(k) plan years beginning after Dec. 31, 2018.
Section 41114: Expansion of Hardship Availability: The 401(k) rules are amended to expand the types of contributions that can be distributed on a hardship. Those contributions now include profit-sharing contributions, qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs), as well as earnings on any of those amounts. In addition, a participant is not required to take a loan before qualifying for a hardship distribution. These rule changes apply to plan years beginning after Dec. 31, 2018.
Sections 30421 – 30424: Joint Select Committee on Solvency of Multiemployer Pension Plans: The purpose of the Joint Select Committee is to provide recommendations and propose bills designed to to improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC). It is a bipartisan committee consisting of 16 members, four from each party from both the Senate and the House of Representatives. Any bills or legislative language proposed by the committee will face a streamlined process to get them through the Senate, but not through the House.