If a 401(k) or 403(b) plan permits employees to take in-service hardship withdrawals in the event of an immediate and heavy financial need, new legislation provides that, effective for plan years beginning in 2023, employers may rely on an employee’s self-certification of the hardship. Prior to this change, an employee was required to substantiate such hardship expenses to receive a distribution on account of financial hardship.

The employee’s written self-certification must state that circumstances for the hardship exist, the amount requested is not in excess of the amount required to satisfy the financial need, and the employee has no alternative reasonably available means to satisfy such need. However, if the employer has actual knowledge that is contrary to the employee’s certification, the hardship withdrawal request must be denied.

In addition, effective for plan years beginning in 2023, 403(b) plans may be amended to allow not only elective deferrals but also the related earnings to be included in financial hardship distributions. This change conforms the 403(b) rules for hardship distributions to the 401(k) rules.