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SECURE 2.0 Provides New Tools to Assist Plan Participants In Crisis

by | Apr 10, 2023

The primary goal of retirement plans is to provide income at retirement, but defined contribution plans have been permitted to make some distributions while participants are employed. The most common form of distribution to participants who are younger than age 59 ½ has been the hardship distribution, which permits money to be withdrawn from their accounts when participants experience a hardship as defined by the IRS. Hardship withdrawals are limited as a practical matter to a fixed list of safe harbor hardship events allowed by the IRS, such as to pay for the funeral of a family member or prevent eviction from a primary residence. Hardship distributions may be subject to a 10% tax penalty as well as regular income taxes.

In addition to making the hardship distribution rules more flexible, SECURE 2.0 expands on the ability of defined contribution plan sponsors to make penalty-free distributions to participants who have personal emergencies. In some cases, the permanent SECURE 2.0 provisions are modeled on temporary relief granted for specific federal disasters or under the CARES Act.

New Distribution Opportunities

SECURE 2.0 created several new distribution opportunities. Unless otherwise indicated, the changes apply to 401(k) and 403(b) plans, but not to pension plans. Some dollar amounts are subject to future increases to adjust for inflation. These opportunities include:

  • Emergency Expenses. Beginning in 2024, SECURE 2.0 permits penalty-free distributions up to $1,000 a year for unforeseeable or immediate financial needs arising from personal or family emergencies. The plan administrator may rely on the participant’s certification of need. A participant who has received a distribution for emergency expenses cannot take another such distribution during the succeeding three calendar years unless the prior distribution has been repaid to the plan or the participant has made new contributions to the plan at least equal to the distribution.
    Also beginning in 2024, defined contribution plan sponsors may establish retirement plan-linked emergency savings accounts for non-highly compensated participants.  Employee contributions will be made on a Roth basis outside the plan and are limited to $2,500. Employers may auto-enroll eligible participants at a rate not exceeding 3% of pay.  If the associated plan provides for matching contributions, employers must match the participant contributions up to the $2,500 limit. Distributions from emergency savings accounts may be taken up to four times a year and are also penalty-free.
  • Federally-Declared Disasters. Previously, special plan relief was provided by the IRS or specific laws on an ad hoc basis when participants suffered losses due to federally-declared disasters, such as Hurricane Maria. IRS regulations also permitted some plans to make federally-declared disasters a hardship distribution event. As a result of SECURE 2.0, a federal disaster declaration can now be made a permanent distribution event for many plans. This change applies to defined contribution plans, including money purchase pension plans, as well as to 401(k) and 403(b) plans. Although pension plans have not been allowed to make in-service distributions prior to age 59 ½, this new distribution event, which is effective now, appears to be available regardless of the participant’s age.
    Plans may permit distributions of up to $22,000 per disaster. Participants will be eligible to receive these distributions only if they live in the disaster area and have an economic loss resulting from the disaster. The dollar limit applies to the sum of all distributions from all plans and IRAs.
  • Special Disaster Loan Relief. Separate loan relief is available to 401(k) and 403(b) plans, but not to money purchase plans. This is similar to temporary relief provided under the CARES Act, and permits increases to the maximum loan amount, which is usually the lesser of $50,000 or 50% of the participant’s vested account balance. This can be temporarily increased to $100,000 or, if less, the participant’s vested account balance. Plan sponsors may also suspend loan repayments for up to one year, provided the suspension period extends the loan term.
  • Terminal Illness. Participants may receive penalty-free distributions without any dollar cap if a physician certifies that the participant has a condition or illness that is reasonably expected to result in death within 84 months.
  • Domestic Abuse. 401(k) and 403(b) plans that are exempt from the qualified joint and survivor annuity requirements may make distributions to victims of domestic abuse beginning in 2024. These distributions may be made based on abuse by spouses or domestic partners, or as a result of abuse of a child or other family member living in the same household. They are limited to $50,000 or, if less, 50% of the participant’s vested account.
  • Repayment Opportunities. These new distributions may be repaid to the plan within three years of receiving the distribution. Participants who receive federal disaster distributions will also have the ability to spread the tax liability over three years, as was the case with CARES Act distributions. The three year repayment limit will also apply to distributions made for birth or adoption expenses, which were permitted under SECURE 1.0. Previously, there was no time limit on repayment of distributions for birth or adoption expenses.
  • 403(b) Plan Hardship Distributions Are Made Easier. Participants in 403(b) plans have been more limited in their ability to take hardship distributions than participants in 401(k) plans. SECURE 2.0 levels the playing field beginning in 2024 by permitting all 403(b) plans to make distributions of earnings on employee contributions and to make hardship distributions of employer contributions. In addition, SECURE 2.0 allows plan administrators of both types of plans to rely on participant certifications of hardship and financial need without investigation.

Plan Sponsors Should Proceed with Caution

Although these new provisions will enable plans to be more responsive to participants’ financial difficulties, plan sponsors considering the new options should understand any associated administrative responsibilities and look into their recordkeeper’s capabilities. Although some distribution options are available now, plan sponsors will probably also want to wait until the IRS has issued guidance interpreting the new rules before proceeding.

About the Author

Carol I. Buckmann, JD, is the co-founding partner of Cohen & Buckmann, P.C. She is one of the top-rated employee benefits and ERISA attorneys in the U.S., and deals with some of the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities, and investment fund formation.

The views expressed in this article are those of the author and do not necessarily represent the views of PenChecks Trust®, its subsidiaries or affiliates.


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Each year, approximately five million Americans with small retirement accounts (currently defined as having balances of less than $7,000) change jobs – and at that point are forced to make a decision.

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Take it or Leave it

Each year, approximately five million Americans with small retirement accounts (currently defined as having balances of less than $7,000) change jobs – and at that point are forced to make a decision.


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