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Most 401(k)s Embrace New Hardship Rules, But Participant Response Muted

Despite liberalized rules, most have not yet seen an increase in hardship requests.


Hattie Greenan

Employers that sponsor 401(k) plans have moved quickly to incorporate new, more liberal, hardship withdrawal provisions – but most have not yet seen an uptick in participants taking advantage of the new rules, according to a new snapshot survey by the Plan Sponsor Council of America (PSCA), part of the American Retirement Association (ARA).

The Bipartisan Budget Act of 2018 directed the Secretary of the Treasury to modify the rules to, among other things, delete the 6-month prohibition on contributions following a hardship distribution. In September 2019, following the issuance of proposed regulations, the Treasury Department and Internal Revenue Service (IRS) issued final regulations. The final regulations broadened the definition of hardship withdrawals and reduced the penalties for taking one – they will go into effect next year.

Immediately following the publication of the final regulations, PSCA conducted a brief survey to assess both the pace and scale of adoption to these new, less stringent requirements, and the participant response, if any.

Nearly two-thirds (64.6 percent) of respondents have already adopted the new hardship provisions but most (72.6 percent) have not seen any change in the number of hardship withdrawals since the new provisions were implemented. Fewer than one-in-five (17.8 percent) noted an uptick in hardships in 2019 – but even among those that did, the vast majority (92.3 percent) are not considering any changes to their provisions at this time.

The area of most agreement among sponsors was the provision eliminating the post-withdrawal 6-month suspension of elective deferrals – 60 percent of respondents said that was a “wonderful idea.”

“Pre-retirement distributions of retirement savings continues to be a matter of concern,” said Hattie Greenan, PSCA director of research. “Congress’ action to liberalize the requirements for hardship withdrawals is a welcome change for those who use 401(k) monies to stave off financial ruin, or cope with emergencies. However, because of the potential long-term impact of expanded hardship withdrawals, it is critical to keep a close eye on how these changes might affect retirement security.”

Other key survey findings include:

  • About half of respondents stated that they are “OK” with the provisions to allow hardships for casualty losses associated with federal disasters. 
  • More than 20 percent think the provision to allow hardships for casualty losses associated with federal disasters is a wonderful idea, and nearly a quarter (23 percent) are largely comfortable with it but remain concerned about possible implications. 
  • Nearly 30 percent state that the requirement that participants take loans before accessing a hardship withdrawal is a bad idea or one where the bad outweighs the good. 

The full survey is available at

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The Plan Sponsor Council of America (PSCA) is a diverse, collaborative community of employee benefit plan sponsors, working together on behalf of millions of employees to solve real problems, create positive change, and expand on the success of America’s voluntary, employer-sponsored retirement system. With members representing employers of all sizes, PSCA offers a forum for comprehensive dialogue. By sharing our collective knowledge and experience as plan sponsors, PSCA also serves as a resource to policymakers, the media, and other stakeholders as part of its commitment to improving retirement security for millions of Americans. For more information, visit