403b hardship

[Santo Gold]

We have a 403(b) plan that has all assets held in custodial accounts.  Can the participant take a hardship from the employer contribution account?  The new regs prevent taking ER QNEC and QMAC from custodial accounts, but if this is just a matching contribution account, could the hardship come from that account?

[Belgarath]

Trying to fight through Monday morning brain fog - must... get... coffee!...but my recollection is that the restriction applies to employer contributions, so I'd say no. 

[Peter Gulia]

About a § 403(b)(7) custodial account:

The agency’s rule distinguishes between amounts attributable to elective deferrals and those that are not.  Compare 26 C.F.R.§ 1.403(b)-6(c) with -6(d).  https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-6

Further, -(d)(2) provides: “[A] hardship distribution is limited to the aggregate dollar amount of the participant's section 403(b) elective deferrals under the contract (and may not include any income thereon), reduced by the aggregate dollar amount of the distributions previously made to the participant from the contract.”

Different rules could apply regarding a § 403(b) annuity contract or a § 403(b)(9) retirement income account.

[ERISAGal]

I believe you can allow in-service withdrawals from 403(b) matching contributions on account of a financial hardship.  Of course, the plan document needs to allow for this.  

[Patricia Neal Jensen]

From the Federal Register with regard to  Reg's proposed in 2019:

Income attributable to 403(b) elective deferrals ineligible for hardship distribution due to failure of the law to amend Sec 403(b)(11); QNEC's and QMAC's in a 403(b) custodial account are ineligible for hardship distribution.

However, the FTW  plan document for a 2021 restatement we worked with specifies:

"Hardship
NOTE: Safe Harbor Contributions, Qualified Non-Elective Contributions, Matching Contributions held in a custodial account, and Non-Elective Contributions held in a custodial account are not eligible for hardship withdrawals."

Check your document very carefully.