As part of SECURE 2.0, several new optional provisions are available for 401(k) plans beginning in 2027. These provisions are intended to provide participants with increased flexibility with regards to both contributions and distributions.
Important Considerations:
While these features can provide increased flexibility and situational access to funds, they also introduce several important considerations for Plan Sponsors:
Increased Administrative Complexity
Each provision adds new processing rules, administration coordination, and in some cases, new distribution types.
Ongoing Monitoring & Consistency
Some provisions include repayment rules, eligibility requirements, or event-based triggers that require ongoing oversight.
Participant Communication & Education
Additional education is often needed to ensure participants understand when and how these options apply, as well as the tax implications.
Impact on Retirement Outcomes
Some of these provisions expand access to retirement funds prior to retirement, which may reduce participants’ long-term savings and impact overall retirement readiness.
Your Options for 2027
- Elect to adopt some or all of these provisions
- Choose not to adopt any at this time
Your Trust Point Relationship Manager is available to discuss these options and answer any questions as you determine the approach that best fits your plan.
Optional Provisions:
Terminally Ill Distributions
Allows participants who are terminally ill to access their retirement funds without early withdrawal penalties.
- Physician certification required
- 10% early withdrawal penalty waived
- Subject to income tax
- No specific dollar limit
- Repayment permitted within 3 years (to recover taxes paid)
- Requires sensitive participant communication
Qualified Disaster Recovery Distributions
Designed to provide financial relief to participants impacted by major disasters, giving them access to funds with more favorable tax treatment and repayment flexibility during recovery.
- Available to participants whose primary residence is in a FEMA declared disaster area
- 10% early withdrawal penalty waived
- Subject to income tax
- Distribution limits apply per disaster
- Repayment permitted within 3 years
Qualified Birth or Adoption Distributions (QBAD)
Allows participants to access their retirement account following the birth or adoption of a child.
- Distribution limit up to $5,000 per child
- Must be within 1 year of the child’s birth or legal adoption date (adoption of a spouse’s child does not qualify)
- 10% early withdrawal penalty waived
- Subject to income tax
- Repayment permitted within 3 years
- Requires documentation of eligibility and timing
Emergency Personal Expense Distributions
Allows participants to take a small penalty-free withdrawal for unforeseeable or immediate financial needs related to personal or family emergency expenses.
- Allows one distribution per calendar year
- Distribution limit up to $1,000 10% early withdrawal penalty is waived
- Subject to income tax
- Repayment permitted within 3 years
- No additional emergency distributions permitted during the repayment period unless the prior distribution is repaid or replaced by new contributions
Domestic Abuse Victim Distributions
Provides access to retirement funds for participants who have experienced domestic abuse, offering financial support in sensitive and urgent situations.
- Available to participants experiencing domestic abuse
- Distribution limit is the lesser of $10,000 (indexed) or 50% of the participant’s vested account balance
- 10% early withdrawal penalty waived
- Subject to income tax
- Repayment permitted within 3 years
- Requires careful handling of sensitive participant information
Student Load Matching Contributions
Allows employers to make matching contributions based on employees’ qualified student loan repayments instead of retirement deferrals.
- Employer match based on qualified student loan repayments
- Requires verification of loan payments
- Treated as matching contributions (subject to vesting)
- Subject to annual plan limits (IRS limits)
- Adds payroll and recordkeeping complexity
- May support recruitment and
retention efforts
Your Relationship Manager is available to discuss these options and answer any questions as you determine the approach that best fits your plan.
