August 10, 2020

Volume X, Number 223

August 10, 2020

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U.S. Budget Act and Retirement Plans

When Congress passed and President Trump signed the Bipartisan Budget Act of 2018 earlier this month, the folks monitoring developments in Washington, D.C. knew, among other things, that it ended a very brief government shutdown, dramatically increased government spending, and raised the debt ceiling.  But few knew that the Budget Act will affect tax-qualified retirement plans.  It does.  Here is how.

  • Facilitates Hardship Withdrawals from Defined Contribution Plans. The Budget Act eases the rules governing hardship withdrawal in three ways, each effective for plan years beginning December 31, 2018.  First, participants will no longer have to exhaust plan loan opportunities before taking a hardship withdrawal. Second, the Budget Act directs the Treasury Department to eliminate existing regulations that prevent participants who have taken hardship withdrawals from making plan contributions for six months after receipt of the hardship withdrawal.  Third, the funds available for hardship withdrawals will be expanded to include certain employer contributions and earnings and earnings on elective deferrals as well as elective deferrals (which are currently available).   These new rules are optional; plans may be amended to adopt them but are not required to do so.

  • Creates Select Committee on Multiemployer Pension Plans. The Budget Act establishes a bipartisan Committee made up of eight House and eight Senate members tasked with addressing the solvency issues confronting multiemployer pension plans and the Pension Benefit Guaranty Corporation.  It directs the Committee to provide recommendations to address the solvency crisis and propose legislation to implement their recommendations by the end of November 2018. Committee co-chairs are to be named by party leadership by February 23.

  • Allows Return of Improper IRS Levy. Under the Budget Act, retirement plans (including IRAs) can provide for individuals to recontribute amounts (plus interest) that had been withdrawn from their plans due to improper IRS levies.

  • Provides Qualified Wildfire Distributions for Californians. The Budget Act allows qualified retirement plans to allow certain California residents affected by the California wildfires to receive distributions up to $100,000 from eligible retirement plans without being subject to the 10% early withdrawal penalty.  These distributions can be recontributed to the plan during a three-year period and will be included in the participants’ income over a three-year period unless a participant elects otherwise.  Under the Budget Act, plans also can be amended to increase the loan amounts that eligible participants can take and to permit those with outstanding plan loans to delay repayment for one year. In addition, plan participants who took loans to buy or build homes in areas affected by wildfires can return the loan amount to their retirement plans if the purchase or construction was cancelled due to the wildfires.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume VIII, Number 52


About this Author

Stacey Grundman  Employee Benefit & Executive Compensation Attorney Squire Patton Boggs Washington DC
Senior Attorney

Stacey Grundman advises clients on employee benefit and executive compensation matters, including the design, implementation, governance, operation and regulatory compliance of qualified and nonqualified retirement plans, equity and executive compensation arrangements, and health and welfare plans.

Her practice covers the complex range of issues that arise under ERISA, the Internal Revenue Code, the Affordable Care Act, COBRA and HIPAA, as well as issues facing public and collectively bargained pension plans. Stacey regularly addresses the fiduciary, plan governance and prohibited...