Federal budget agreement includes a number of retirement-related provisions

President Trump on February 9, 2018 signed the Bipartisan Budget Act (P.L. 115-123) into law after a brief government shutdown occurred overnight. The House approved the legislation, which contains a continuing resolution to fund the government and federal agencies through March 23, in the early morning hours of February 9, by a 240-to-186 vote. The Senate approved the bipartisan measure just before by a 71-to-28 vote. Among the retirement provisions in the new law are items relating to hardship withdrawals, disaster relief, and improper levies on retirement plans. Another provision creates a bipartisan Joint Select Committee to attempt to deal with multiemployer plan solvency issues. Many of the retirement provisions included in the budget deal had previously been included in the Tax Cuts and Jobs Act (P.L. 115-97) enacted late in 2017, but were dropped before final passage of that 2017 legislation.

Hardship withdrawal provisions modified

The Budget Act includes several provisions relating to hardship withdrawals. Under one such provision, the measure removes the six-month prohibition on retirement plan contributions after a hardship withdrawal. The legislation further directs the IRS, within one year after enactment, to (1) change its administrative guidance in IRS Reg. Sec. 1.401(k)-1(d)(3)(iv)(E) to delete the current six-month prohibition on plan contributions, allowing employees taking hardship distributions from a retirement plan to continue contributing to the plan, and (2) make any other modifications necessary to carry out the purposes of Code Sec. 401(k)(2)(B)(i)(IV). The revised regulations would apply to plan years beginning after December 31, 2018.
Further, under the Act, new Code Sec. 401(k)(14) would permit employers to include qualified nonelective contributions (QNECs), qualified matching contributions (QMACs) and profit-sharing contributions amounts in a hardship withdrawal. It also would remove the requirement to take available loans under the plan before taking a hardship withdrawal. The provision applies to plan years beginning after December 31, 2018.

Special disaster relief for persons impacted by California wildfires

Under the Act, special disaster relief applies for retirement funds used by individuals impacted by the California wildfires. In general, the legislation provides relief from the 10 percent early withdrawal penalty under Code Sec. 72 for qualified wildfire distributions of up to $100,000 (reduced by qualified wildfire distributions received by the individual in prior tax years) made on or after October 8, 2017, and before January 1, 2019. The provision applies to distributions made to an individual whose principal place of residence during any portion of the period was in the California wildfire disaster area and who has sustained an economic loss due to the wildfires.
Unless the taxpayer elects not to do so, qualified wildfire distributions can be included in income ratably over a three-year period beginning with the year of distribution. In the alternative, for qualified wildfire distributions from an eligible retirement plan other than an IRA, amounts that are recontributed within the three-year period would be treated as a rollover distribution and not includible in income.
The legislation also allows individuals to recontribute, during the period beginning on October 8, 2017 through June 30, 2018, withdrawn funds to retirement plans. This special rule applies if the funds were received after March 31, 2017 and before January 15, 2018, and those funds were to be used to purchase or construct a home in a wildfire disaster area but which was not purchased or constructed on account of the wildfires.
Special rules apply for loans made to a qualified individual whose principal place of abode during any portion of the period from October 8, 2017 through December 31, 2017 is located in the California wildfire disaster area and who has sustained an economic loss due to the wildfires. For any loans made to a qualified individual from a qualified retirement plan during the period beginning on the date of enactment (February 9, 2018) and ending on December 31, 2018, the Act (1) increases the loan limit from $50,000 to $100,000 and (2) substitutes “the present value of the nonforfeitable accrued benefit of the employee under the plan” for “one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan.”
The Act also delays the repayment deadline for loans from retirement plans for persons with an outstanding loan on or after October 8, 2017 from a qualified retirement plan by one year if the due date occurs during the October 8, 2017 through December 31, 2018 period. Any subsequent repayments are to be appropriately adjusted to reflect the delay in the due date and any interest accruing during such delay. In determining the five-year repayment period and the term of a loan, the one-year delay period is to be disregarded.

Improper levies on retirement plans

The Budget Act also includes a provision giving the IRS the authority to release a levy on property or money held in retirement plans that was wrongfully levied upon. The measure allows an individual to recontribute, either to an IRA or employer-sponsored plan, an amount withdrawn (and any interest paid on such amount) pursuant to a levy and later returned by the IRS to the individual. Contributions are allowed without regard to the IRA contributions and rollover limits that normally apply. The provision on holding individuals harmless on improper retirement plan levies is effective for amounts paid in tax years beginning after December 31, 2017.

Joint Select Committee on multiemployer plan solvency created

The Budget Act establishes a Joint Select Committee on Solvency of Multiemployer Pension Plans. The bipartisan committee composed of members from both parties and both houses of Congress will be formed in an attempt to address multiemployer pension plan solvency issues. The Joint Select Committee is to vote on a report, no later than November 30, 2018, containing a detailed statement of findings, conclusions, and recommendations of the joint committee and proposed legislative language to carry out these recommendations. The committee will include 12 members, consisting of six members from the House and six from the Senate and an equal number of Democrats and Republicans. If a majority of members from each party agree on a compromise, the committee’s recommendation would be guaranteed an expedited vote in both the House and Senate with no amendments. This expedited vote would occur no later than the last day of the 115th Congress.

Source: P.L. 115-123.
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