ERIC submitted comments to the Internal Revenue Service (IRS) on proposed regulations relating to hardship distribution provisions for 401(k) plans. ERIC was generally supportive of the regulations, but urged the IRS to give employers the flexibility to determine whether to suspend a participant’s elective deferrals for up to a six-month period following receipt of a hardship distribution. ERIC believes that the prohibition in the proposed regulation on contribution suspensions is neither required by the relevant legislation, nor does it further the public interest as it will likely increase “leakage” from retirement savings and unreasonably restrict plan sponsor discretion in tailoring 401(k) plans to their specific workforce.
ERIC also called for removing the mandatory requirement in the proposed regulations that participants take distributions of all employee stock ownership plan dividends before receiving a hardship distribution. ERIC believes that this requirement results in a disproportionally large burden placed on plan administrators that far outweighs the often-negligible effect that such a distribution would have on participants’ financial situations.
Click here to read ERIC's comments.