Background

We are a 501(c)(3) nonprofit organization and sponsor a 403(b) plan. One of our employees just took a hardship distribution to pay for secondary school tuition. I’m aware that the law requires six (6) month suspension of employee contributions when an employee takes a hardship. However, most recently I read that deferral suspension requirement no longer applies.

Question

Do we need to suspend the employee’s contributions as a result of the taking hardship distribution, or is that now optional?

Answer

It looks like you read a lot about retirement plan rules and regulations – we command you on that! So, prior to 2019 employers were required to suspend salary deferrals for any participant who took a hardship distribution from the plan. That has now changed. For the year 2019, six-month suspension is optional. In other words, during 2019 employers have two options: (1) you can continue the six (6) month suspension as usual, or (2) employers can apply the new rule and not suspend deferrals at all. Whatever the decision, you will need to adopt an amendment to commemorate the decision at some point in the future. Keep in mind that beginning 2020, the new rule kicks in fully and plans cannot apply the suspension rule.