Amending your 403(b) plan for updated hardship withdrawal regs and for the SECURE and CARES Acts

A guide to what 403(b) plan sponsors need to know about upcoming plan amendments for IRS final hardship withdrawal regulations, CARES Act and SECURE Act

5 key takeaways for 403(b) plan sponsors

  1. A 403(b) plan of either a public school or 501(c)(3) organization will need to adopt a plan amendment by the end of 2021 if the 403(b) plan allows hardship withdrawals.
  2. The Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019 modified the required minimum distribution (RMD) rules for both plan participants and beneficiaries, and provided additional opportunities for a participant to access their retirement account while employed.
  3. The Coronavirus Aid, Relief, and Economic Security Act (CARES) permitted 403(b) plans to offer a coronavirus-related distribution (CRD) and loan relief to “qualified individuals.” 
  4. All 403(b) plans of public schools must adopt the SECURE and CARES amendments by the end of 2024, unless prescribed differently by the Secretary of Treasury.
  5. All plans for 501(c)(3) organizations with 403(b) plans will have until the end of the 2022 to adopt SECURE and CARES amendments unless prescribed differently by the Secretary of Treasury.

On September 19, 2019, the Internal Revenue Service (IRS) released its highly-anticipated final regulations on hardship withdrawals for 403(b) and 401(k) plans. To simplify this mandate, we have highlighted a few of the key points as well as offered clarification on changes and important plan amendment timing. We have provided this information based on some of the most frequently asked questions in regard to:

  1. Hardship withdrawal plan amendments;
  2. Plan amendments pertaining to the Setting Every Community Up for Retirement Enhancement Act (SECURE); and
  3. Coronavirus Aid, Relief, and Economic Security (CARES).

Continue reading to learn more and reach out to your Voya Relationship Manager for answers to your specific plan amendment questions or clarification.

403(b) hardship withdrawal plan amendment FAQs

As directed by the Bipartisan Budget Act of 2018, the IRS updated the hardship withdrawal rules to redefine what may be classified as a financial hardship. In addition, these updates eliminated the criteria for assessing whether a participant could satisfy the financial need from other resources.

  403(b) Plan of Either a Public School or 501(c)(3) Organization
Does the change mean that the 403(b) plan must be amended?

Yes, if the 403(b) plan that permits hardship withdrawals.

If the 403(b) plan permits hardship withdrawals, what elements must be part of a hardship withdrawal amendment?
  • Elimination of the requirement to:
    • Suspend employee contributions for 6 months after hardship; and
    • Take all available plan loans prior to a hardship withdrawal;
  • Treatment of losses/expenses incurred as a result of a federally declared disaster by the Federal Emergency Management Agency (FEMA) as a permitted hardship event;
  • Treatment of damage to principal residence due to casualty loss as a permitted hardship event; and
  • Provision that employer may rely on participant representation of insufficient cash/funds to satisfy the financial need unless employer has actual knowledge to the contrary.

When must the hardship amendment be adopted?

NOTE:  this plan amendment retroactively authorizes the operation of the 403(b) plan with respect to hardship withdrawals in or after 2020. 

By the end of 2021 if the 403(b) plan permits hardship withdrawals on or after January 1, 2020.

 

SECURE Act plan amendment FAQs

SECURE Act modified the required minimum distribution (RMD) rules for both plan participants and beneficiaries, and provided additional opportunities for a participant to access their retirement account while employed.  

 

  403(b) Plan of Public School 403(b) Plan of a 501(c)(3) Organization
Does the change mean that the 403(b) plan must be amended?

Yes, with respect to the RMD changes.

If the 403(b) plan permits any of the optional features notes below, the plan must also be amended to reflect adoption of those optional features. 

What are the RMD changes that are required to be in a SECURE amendment?
  • For participants who were born before June 30, 1949, the first RMD must be taken no later than April 1 of the year following the later of the year that the participant reaches age 72 or retires.
  • If a plan participant dies in or after 2022, a nonspousal beneficiary who:
    • does not meet the criteria of an eligible designated beneficiary: generally must take a full distribution of the deceased participant's account by the 10th year following the year of the plan participant's death;
    • meets the criteria of an eligible designated beneficiary: generally may take lifetime distributions.
  • For participants who were born after June 30, 1949, the required beginning date for the 1st RMD is April 1 of the year following the later of the year that the participant reaches age 72 or retires.
  • If a plan participant dies in or after 2020, a nonspousal beneficiary who:
    • does not meet the criteria of an eligible designated beneficiary: generally will need to take a full distribution of the deceased participant’s account by the 10th year following the year of the plan participant’s death;
    • meets the criteria of an eligible designated beneficiary: generally may take lifetime distributions.
What other changes may be included in a SECURE amendment? 

If permitted under the 403(b) plan:

  • In-service withdrawal of up to $5,000 per birth or adoption of a participant’s child within one year.
  • If the 403(b) plan accepts rollovers, repayment of the birth or adoption withdrawal.

If permitted under the 403(b) plan:

  • In-service withdrawal of up to $5,000 per birth or adoption of a participant’s child within one year.
  • If the 403(b) plan accepts rollovers, repayment of the birth or adoption withdrawal.
  • Only if the 403(b) plan is subject to ERISA and has a Qualified Automatic Contribution Arrangement (QACA) feature: maximum percent of compensation on automatic escalation may increase from 10% to 15% for years after the 1st plan year in which the employee is automatically enrolled.

When must the SECURE amendment be adopted?

NOTE:  this plan amendment retroactively authorizes the operation of the plan in accordance with the SECURE provisions, provided that the plan has operationally complied with these provisions during the interim period

By the end of 2024 year, unless the Secretary of the Treasury prescribes a later date.

 

By the end of 2022 year, unless the Secretary of the Treasury prescribes a later date.

 

CARES Act plan amendment FAQs

CARES permitted 403(b) plans to offer a coronavirus-related distribution (CRD) and loan relief to “qualified individuals.”  For these purposes, a qualified individual:    

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, "COVID-19") by a test approved by the Centers for Disease Control and Prevention; or
  • experiences adverse financial consequences as a result of the individual, the individual's spouse, or a member of the individual's household:
    • being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • being unable to work due to lack of childcare due to COVID-19;
    • closing or reducing hours of a business that they own or operate due to COVID-19;
    • having pay or self-employment income reduced due to COVID-19; or
    • has a job offer rescinded or start date for a job delayed due to COVID-19.

  

  403(b) Plan of Public School 403(b) Plan of a 501(c)(3) Organization
Does the change mean that the 403(b) plan must be amended?

Yes, with respect to the waiver of RMD.

If the 403(b) plan permits any of the optional features notes below, the plan must also be amended to reflect adoption of those optional features. 

What are the RMD changes that are required to be in a CARES amendment?
  • Waiver of the RMD for 403(b) plan participants or beneficiaries (as applicable) for the 2020 tax year;
  • Waiver of the 2019 RMD for 403(b) plan participants who had not yet taken that RMD in 2019 and would have been required to do so by April 1, 2020; and
  • Determination of the 5-year period for nonspousal beneficiaries to take a full distribution of the account of the deceased participant is determined without regard to 2020. 
What other changes may be included in a CARES amendment? 

If permitted under the 403(b) plan and if  the criteria of a “qualified individual” are satisfied:

  • CRDs taken between January 1, 2020, and December 30, 2020 and (if the plan accepts rollovers) recontribution of some or all of a CRD.
  • Maximum amount available for a loan taken between March 27, 2020, and September 22, 2020, is the lesser of $100,000 (less any outstanding loan balance) or 100% the vested account balance. 
  • Suspension of loan repayments due between March 27, 2020 and December 31, 2020 for up to one year.

When must the CARES amendment be adopted?

NOTE:  this plan amendment retroactively authorizes the operation of the plan in accordance with the CARES provisions, provided that the plan has operationally complied with these provisions during the interim period.   

By the end of 2024 year, unless the Secretary of the Treasury prescribes a later date. By the end of 2022 year, unless the Secretary of the Treasury prescribes a later date

 

If you have questions or would like assistance, reach out to your Voya Relationship Manager.

 

This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision.

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