Partnering with you to help implement key SECURE 2.0 provisions
Supporting your participants with emergency withdrawal provisions
The SECURE 2.0 Act has made it possible for participants to take a withdrawal when they may need it most.
Section 115— Emergency Expense Withdrawals up to $1,000
Allows eligible participants to take one self-certified, penalty-free withdrawal of up to $1,000 per calendar year for unforeseeable or immediate financial needs relating to personal or family emergency expenses. Only one withdrawal per 3-year repayment period is permitted if the first withdrawal has not been repaid.
Section 312— Financial Hardship and Unforeseeable Emergency Self-Certification
A plan administrator may rely on an employee’s self-certification that they have had a safe harbor event that constitutes a deemed hardship for purposes of taking a hardship withdrawal from a 401(k) plan or a 403(b) plan. The administrator can also rely on the employee’s certification that the distribution is not more than the amount required to satisfy the financial need and that the employee has no alternative means reasonably available to satisfy the financial need. A similar rule applies for purposes of unforeseeable emergency distributions from governmental Section 457(b) plans.
Sections 115 and 312 - Comparisons
Plan sponsors should consider where there is a plan benefit to implementing one or both optional provisions.
Plan Sponsor Considerations
Section 115
Emergency Expense Withdrawals up to $1,000 |
Section 312
Financial Hardship and Unforeseeable Emergency Self-Certification |
| Benefits |
Benefits |
- Reduce financial stress on employees faced with unexpected emergency expenses
- Potential to increase plan enrollment and engagement
- There are no changes required to the payroll submission process; Nationwide will track the amount of payroll contributions toward the repayment of the distributed amount
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- Streamlined process for participants and reduced processing time
- Shifts responsibility to participant for documentation retention related to each distribution request
- Potential to increase plan enrollment and engagement
|
| What to watch out for/downsides |
What to watch out for/downsides |
- May allow for unnecessary access to retirement plan accounts originally intended to be long-term investment vehicles
- Increased fraud risk as participants might falsely claim emergencies to withdraw retirement funds
- Future IRS guidance may change how this provision is administered
|
- Elevated risk of assets leaving the plan, thereby reducing plan health and retirement readiness
- No repayment of distribution allowed
- Potential fraud from bad actors having greater access to participant retirement accounts due to self-certification and no requirement to provide identifying documentation
- Removes Nationwide as an expert partner in oversight of withdrawal regulations
- Interpretation of IRS regulations and/or definitions shifts to the employee
- Future IRS guidance may change how this provision is administered
|
Participant Considerations
Section 115
Emergency Expense Withdrawals up to $1,000 |
Section 312
Financial Hardship and Unforeseeable Emergency Self-Certification |
| Benefits |
Benefits |
- Eligible distributions not subject to the 10% early withdrawal penalty
- Participant may self-certify the qualifying event
- Repayment via payroll or check
- Ease of access to emergency funds
|
- No waiting period between withdrawals
- No limit to the number of withdrawals
- Ease of access to emergency funds
- Available online via participant website
- No documentation required to be submitted at the time of the distribution, but must be retained in case of IRS audit
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| What to watch out for/downsides |
What to watch out for/downsides |
- Only one distribution is allowed per calendar year if repaid
- If distribution is not repaid, must wait an additional 3 calendar years before taking another emergency withdrawal
- The maximum emergency withdrawal is $1,000, as long as the vested account balance remains above $1,000 after the withdrawal
- May impact retirement readiness by allowing access to retirement plan accounts originally intended to be long-term investment vehicles
- This option is available to participant only via paper form
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- May impact retirement readiness by allowing greater access to retirement plan accounts originally intended to be long-term investment vehicles
- Participant responsible for keeping required documentation in case of IRS audit
- Employees must still provide written representation that they have insufficient cash or liquid assets to reasonably satisfy the need
- Employee misunderstanding of Financial Hardship and Unforeseeable Emergency rules may lead to a nonqualified distribution, subjecting themselves to potential penalties
- No waiver of 10% early withdrawal penalty
- No formal repayment program
|
Frequently Asked Questions
Please use these frequently asked questions to help you better understand these optional provisions and how they can affect you and your participants.
What do I need to do to adopt either provision?
As a plan sponsor, if you wish to adopt either of these provisions, you will need to complete the Intent to Adopt form and return it to Nationwide. Your plan will need a formal amendment for these provisions by the applicable deadline: 31 de diciembre de 2029, for governmental plans, and 31 de diciembre de 2026, for ERISA plans. If Nationwide manages your plan documents, we will ensure that they are formally updated by the regulatory deadlines. If your plan is on an individually designed plan document, the regulatory deadlines above apply.
Can employees take another Emergency Expense Withdrawal as soon as the previous withdrawal is paid off?
Only one Emergency Expense Withdrawal is permitted per calendar year. Participants may be able to request a new Emergency Expense Withdrawal as soon as the amount has been repaid, as long as the last Emergency Expense Withdrawal was not taken in the same calendar year.
How do Emergency Expense Withdrawal repayments affect payroll and 402(g) limits?
Participants have two main options to repay an Emergency Expense Withdrawal:
- Payroll Deductions: Participants who are currently contributing will automatically have those contributions count toward the repayment of the withdrawal. Participants who are not currently contributing can restart their contributions. All contributions received through payroll will count toward the annual 402(g) limit on elective deferrals, which is the maximum amount a participant can contribute to their retirement plan each year.
- Check Repayments: Alternately, participants can make repayments by check. These repayments are treated as eligible rollovers and do not count toward the 402(g) limits. This option allows participants to restore their retirement savings without affecting their annual contribution limits.
Participants generally have up to 3 years to repay the Emergency Expense Withdrawal to avoid paying income taxes on the amount withdrawn.