The Bi-Partisan Budget Act of 2018, which went into effect last year, included provisions to make it easier for participants in qualified retirement plans to take hardship withdrawals. Perhaps the biggest change in the liberalization of the hardship rules was the removal of the requirement of participants to exhaust all plan loan options first, before qualifying for hardship.

Enter the plan loan. The loan feature, while considered by many to be a necessary evil and administrative burden, exists to give participants access to their money in times of financial need. According to numerous industry studies, it is a feature that encourages greater plan participation and savings rates by creating emergency liquidity in times of need.

The big difference between loans and hardships is that the loan feature has a far better chance of preserving retirement security, especially if protected or insured against default. Loans are designed to be paid back, and for the most, repayment is facilitated seamlessly through payroll deduction.

Read the Employee Benefits News article here.