Effective June 1, 2023, the Equity-League 401(k) Plan (“Plan”) is happy to announce that a new distribution option will be available, allowing participants to receive a distribution from the Plan within one year of the birth or adoption of a child if certain criteria are met.  The criteria for such distribution option are described in this notice and are governed by Federal law. The distribution is known as a Qualified Birth or Adoption Distribution (or QBAD).

Under this new option, a participant may receive a distribution of up to $5,000 during the 12-month period following the birth or adoption of a child.

This distribution is not subject to the 10% penalty for early withdrawals (generally, distributions made before you reach age 59 ½). In addition, federal law permits you to repay such distributions within three years if you wish.  Any repayment is treated as a rollover contribution.

Here are some additional details regarding this distribution option:

Who Is Eligible for a “Qualified Birth or Adoption Distribution” (QBAD)?

You may take a QBA Distribution during the one-year period beginning on the date your child is born or legally adopted. Only the adoption of a child under the age of 18 or who is physically or mentally incapable of self-support would qualify for the distribution.  However, the adoption of your spouse’s child (your stepchild) does not qualify for an adoption.

Please note that in order for the distribution to qualify as a QBAD, you must report the name, age, and taxpayer identification number of the new child (or disabled person) on your individual income tax return.

Are there limits that apply to QBADs?

Yes. There is a $5,000 limit per participant per child.  Each parent may take a distribution of up to $5,000 per child; i.e., there is not a “family” limit. Additionally, the $5,000 individual limit is determined separately for each child.  For example, assume a couple has twins.  Each parent could withdraw up to $10,000 ($5,000 x two children) from his or her eligible retirement plan accounts.  If both parents were participants in the Equity-League 401(k) Fund, they could each withdraw up to $10,000 from their 401(k) account.

What are the Tax Withholding and Reporting Requirements for a QBAD?

QBADs are subject to the 10% withholding rate for federal income taxes, unless you elect otherwise.  As noted above, they are not subject to the 10% penalty for distributions before age 59 ½.  They are also not treated as eligible rollover distributions.

John Hancock, the Plan’s Retirement Record Keeper, will report the amount of the distribution on a tax form known as a 1099-R by no later than January 31 of the year following the year of the distribution.

Can you repay a QBA Distribution?

Yes. You will have up to three years from the date the distribution is received to repay the QBAD should you elect to do so.  However, in order to repay the distribution, you must either be employed in “Covered Employment” (work requiring or permitting contributions to the 401(k) Fund on your behalf) or have an account balance. The amount of the repayment cannot exceed the amount of the QBAD distribution.

When Else Can I Take a Distribution from the 401(k) Plan?

Please note that the Plan still allows distributions for other circumstances, as described below:

• • • Termination of Employment –if you have not worked in covered employment for 12 or more consecutive months and are not engaged in covered employment at the time your ap­plication is received. Any period for which you are paid salary under a collective bargaining agreement (an agreement that permits you to defer salary to the Fund) is considered covered employment, whether or not you choose to defer.
    • At Age 59 ½ or Older - Once you have attained age 59½, you may withdraw all or a portion of money attributable to Salary Deferral Contributions or Employer Contributions, even if you are still employed.
    • Disability - If you terminate employment because you have become totally and perma­nently disabled, you are entitled to withdraw all or a portion of your Salary Deferral Account and/or Employer Contribu­tion Account from the Plan. You are considered totally and permanently disabled under the Plan if you have received an award from the Social Security Administration that you are totally and permanently disabled.
    • Hardship Withdrawals for Events Determined by the IRS- You may take a distribution for certain expenses considered a “hardship” under IRS rules, including purchasing a principal residence, to prevent a foreclosure on or avoid eviction from your principal residence, medical expenses, tuition, funeral expenses, repairs for casualty damage to your principal residence or losses caused by a natural disaster (if you live or work in an area declared eligible for individual assistance by FEMA)

If you have questions, wish to apply for a distribution, need more information or want a copy of the Summary Plan Description, please feel free to contact the Benefit Services Department within the Fund Office by phone at (212) 869-9380 or (800) 344-5220 toll-free or by email to 401(k)@equityleague.org. Our office hours are Monday through Friday, 9:30 AM to 5:30 PM EST.