This time of year, gift-givers may feel rich in spirit but otherwise penniless. They may ask whether they can receive a hardship distribution from their 401(k) account when faced with a not-so-holly or jolly bank statement at the end of December. Those of us who work with 401(k) plans know, however, that it takes more than a large credit card bill to justify a participant’s request for a hardship distribution. Generally, the federal tax code restricts a participant’s access to a 401(k) account balance so that such benefits can provide retirement income, not replenishment of a checking account. More specifically, federal tax rules permit a hardship distribution only if (a) the participant experiences an “immediate and heavy financial need” and (b) the distribution is no greater than the amount “necessary to satisfy the financial need.” In turn, Treasury regulations provide that hardship withdrawals on 401 (k) balances are available for participants who satisfy any of 6 safe harbors or a general, catch-all provision.
Fear of creatures that lurk in deep water is pretty universal – for confirmation, look no further than the numerous summer movies featuring unexpected attacks by fierce underwater predators with sharp teeth. Inevitably, none of the victims seem to have any tools that will actually save them. One after another, their tools break, and their escape attempts fail pitifully. Unfortunately, such movies give the impression that the only protection from these predators is staying out of the water altogether.
Although 401(k) plans are intended to accumulate savings for participants’ retirement, the reality is that when unexpected expenses arise, participants may ask whether they can get a distribution from their 401(k) account. Federal tax rules permit a hardship distribution if (a) the participant experiences an “immediate and heavy financial need,” and (b) the distribution is no greater than the amount “necessary to satisfy the financial need.” If a plan administrator permits a hardship distribution that does not fit within the hardship rules, the result is an operational error that must be corrected in accordance with IRS rules. To avoid the time and expense involved with corrections, plan administrators should stay current with rules in this area. In recent legislation, Congress has loosened restrictions on hardship distributions in some ways and tightened them in others.
“It’s a New Dawn; It’s a New Day; It’s a New Life for Me; and I’m Feeling [not so] Good”
While Nina Simone’s song captures the power of “feeling good,” the effects of an employee’s disability do not feel good for the employee or employer. And if your organization offers employee benefits that require the plan administrator to determine whether a plan participant is disabled, you should confirm that your plans reflect updated claims and appeal procedures. Regulations finalized back in 2016 are now in effect.
Wellness programs in the workplace are generally based on the belief that as employees lose weight, stop smoking, eat more healthfully, and lower their cholesterol, their employer will reap a drop in absenteeism and health care costs. With that hope in mind, employers are often willing to offer a financial reward to encourage employees’ participation. The Equal Employment Opportunity Commission (“EEOC”) has long been concerned about whether the financial reward offered makes such wellness programs “involuntary” such that the wellness programs fail to comply with the Americans with Disabilities Act (“ADA”) and/or the Genetic Information Nondiscrimination Act (“GINA”). Previous S&J blog posts have reported the EEOC’s actions with respect to wellness programs over the years, including the EEOC’s issuance of final ADA and GINA regulations addressing wellness programs. Those regulations have been challenged in court by the AARP, and you can expect changes in the regulations as a result. This post will bring you up to speed on the litigation and what you should watch for going forward.
Although the ACA Play or Pay mandate was effective in 2015, it has been unclear when or how the IRS would collect any penalties assessed under that mandate. Earlier this month, however, the IRS quietly provided its answer by updating an online ACA resource and stating that penalty notices for the 2015 year would be issued in “late 2017.” Under the new procedures, an employer who receives one of these notices will have only 30 days to respond. Employers should act now to maximize their ability to respond timely and minimize inadvertent penalty assessments.
Although it has been more than two years since the Supreme Court of the United States (“SCOTUS”) issued its Obergefell v. Hodges opinion and more than four years since its US v. Windsor opinion, the law is still evolving as it concerns same-sex marriage. It is important for employers who wish to minimize their litigation exposure to determine what “rights, benefits, and responsibilities” same-sex spouses should be extended in the same manner as opposite-sex spouses. While SCOTUS has indicated its belief that Obergefell’s holding and application are clear, recent rulings indicate otherwise . . . which means employers would be well-advised to stay tuned.