Hardship Distribution Changes – Tax Reform May Have Unintended Consequences

Matthew P. Chiarello • February 19, 2018

When tax reform proposals were floating around in the fall of 2017, several early proposals to the Tax Cuts and Jobs Act (the “Act”) included changes to the hardship distribution rules for qualified retirement plans. However, the final version of the Act did not make any direct changes to hardship distributions.  Nevertheless, the Act, perhaps unintentionally, made a significant change to the circumstances under which a participant can request a hardship for a personal casualty loss.

Personal Casualty Loss

The Act changed to the definition of a “personal casualty loss” under Section 165 of the Internal Revenue Code (the “Code”). Under the revised definition of 165, a personal casualty loss is only deductible if it is attributable to a federally declared disaster ( i.e. , a disaster that is declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act).  Most 401(k) and 403(b) plans use the “safe harbor” standards for approving hardship distributions.  The safe harbor standards permit hardship distributions for a “personal casualty loss,” which is defined as damage to the employee’s principal residence that would qualify for the casualty deduction under Code Section 165.  In light of the changes made by the Act, the availability of a hardship distribution for a personal casualty loss will be limited only to damage to a participant’s principal residence that occurs in a federally declared disaster.

Unintended Consequence?

It is not entirely clear whether this change to hardship distributions was intended under the Act. The IRS may decide to address this issue in subsequent guidance, but until further guidance is issued, plans may wish to comply with the hardship distribution provisions as modified by the Act.  The new definition is applicable to casualty losses that occur in tax years beginning after December 31, 2017 and before January 1, 2026.

Employee burnout: what it is and how to prevent it

By Mardy Gould • May 24, 2024
Employee burnout has become an epidemic in today’s modern workplace. So much so that the World Health Organization (WHO) officially recognizes it as an “occupational phenomenon.”1 While many used to consider mounting workplace stress an individual employee problem, these days, it’s become an employer’s responsibility to prevent burnout before it hurts productivity and business performance—not to mention your employees’ physical and mental health. Luckily, you can prevent burnout from affecting your workforce in several ways. This article will explore the causes and signs of employee burnout and the steps you can take to create a positive work environment where employees feel safe from toxic stress levels.

Form 720 and PCORI fee FAQs

By Mardy Gould • May 23, 2024
If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization? Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness. Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
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