Q: Our 403(b) plan currently allows for hardship distributions, but the number of such distributions has been on the uptick in recent years. We don’t wish to eliminate hardship distributions, but is there any way we can restrict their availability?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Indeed, there are a number of ways you can restrict hardship distributions. One popular way is by limiting the number that may be taken by any plan participant in a given year or over the participant’s entire length of participation in the plan.

Another popular method is to require that a participant exhaust all loan availability under the plan prior to requesting a hardship distribution. The SECURE 2.0 Act of 2022 clarified that distributions from a 403(b) plan are not treated as failing to be made upon hardship solely because the employee does not take available loans, but a plan can still require that all available loans be taken prior to a hardship distribution being issued.

Before implementing any restrictions, though, you should a) discuss with your recordkeeper or third-party administrator to confirm that any new restrictions can be properly administered, and b) examine the reasons for such distributions to determine if another remedy might exist (e.g., by adding an emergency savings account as an employee benefit, either inside or outside of the retirement plan).

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