hardship and resumption of contributions

[pmacduff]

I seem to recall reading a thread about this quite awhile back; can't find it...

Participant takes hardship distribution December 5, 2007. Plan has 6 month suspension period. Participant is eligible to resume contributions as of 06/05/08. Does participant have to wait until an a plan modification/entry date (quarterly so it would be July 1st) or can participant resume contributions as soon as 6 months expires i.e. June 6th?

I have read through the plan doc info/hardship provisions, but this specfic issue is not addressed that I can find anyway! Client doesn't care either way, but wants to be consistant (even tho' they have very few hardships).

[WDIK]

The following thread was quite a while back.

http://benefitslink.com/boards/index.php?showtopic=15637

[pmacduff]

thanks WDIK, I guess that thread leaves me with the same question because MWeddell says no wait and jaemmons says participant has to wait for the next available modification date.

I have checked and double checked the plan doc, trust doc and SPD. There is no reference to the dating of when a participant can resume contributions only that they must stop for 6 months.

others have thoughts on this?

[rcline46]

I would say it is how you state the results of taking the hardship. If you say the right to defer is suspended, I think you can resume when the suspension is over.

If you say the participant elected a -0- deferral, then I would say you must go with the next available deferral change date.

As a good actuary, I would ask 'What do you want the answer to be?' (That's an OLD joke!)

[pmacduff]

Hardship Application form (generated from the plan doc software) states "I will not be able to make salary deferrals for 6 months after I receive a hardship distribution."

Notice of Hardship Withdrawals (also generated from doc) form states... "that your salary deferrals will be suspended for at least six (6) months after your receipt of the hardship distribution."

Again, the client doesn't care either way - just wants to be consistant and follow the plan terms. This particular employee is anxious to restart deductions asap.

I wanted to see what others thought about this issue if it is not clearly stated in the plan. I didn't think about the "suspended" verbage (vs. electing a "0" deferral amount). I think that gives the client enough to allow immediate resumption.

Thanks

[masteff]

Since your plan has modification dates, I'd suggest re-reading that part of the plan to see what nuiance you can get from it (especially keeping rcline's comment above in mind as you read it).

My thought is if you do let the participant resume contributions then you'd either want a new election made as of the first of the quarter (with footnote that it doesn't superceed a hardship suspension) or only allow the participant to resume at the previous %.

One question: is this an ADP/ACP safe harbor plan? If so then resuming directly at the end of 6 months is of more significance... a point that MWeddell was speaking to in the thread linked above.

[Belgarath]

The regulation (1.401(k)-1(d)(3)(iv)(E)(2)) merely specifies the 6 months. If nothing in the plan document/deferral election documents specifically prohibits the June 5 date, I see no reason why you can't use it. I would tend to agree with Masteff that unless the plan allows a new election at this date, you should start back in with the same deferral percentage that was in effect when the 6 month suspension took place.

[pmacduff]

When I spoke with the client that was the their plan...to simply "reactivate" the participant through payroll at the contribution percentage that was in effect when the hardship was taken.

This isn't a safe harbor plan. Actually there aren't even any employer contributions; the plan consists soley of 401(k) deferrals and rollover accounts.

The contribution language states "Participants may commence salary deferrals on the effective date of participation and on January 1, April 1, July 1 and October 1." It then goes on to say: "Participants may modify salary deferral elections on the first day of each Plan Year quarter."

I think as you all mentioned if the participant was being allowed to resume contributions at a different level then the client would want to have them wait until the next quarterly date. But if the participant resumes at the same level they can start as soon as the 6 months has passed.

Practically I think immediate resumption makes sense because what if the plan had only 2 entry dates? A person taking a hardship in February, for example, would have 6 months up in August but not be able to resume contributions until January of the following year - keeping them from contributing for almost a year!

thanks again for all the responses!

[KateSmithPA]

A client just asked me if the employer must automatically resume salary deferrals from a participant's wages following a 6-month suspension due to hardship withdrawal, OR, can they wait until the participant requests the deferrals to start up again?

My thought is that the employer must start the deferrals up whether or not the participant brings it up (assuming no changes have been made by the participant in the meantime.)

Thank you.

[BG5150]

I would restart the participant unless she in writing that she wants zero deferrals going forward. Then, she could restart the deferrals on the dates specified int he plan docs/SPD if she wants to.

[Guest Sieve]

To resolve this for future hardship distributions, I would take one position or the other and then state that position directly on the hardship distribution form so the particiant is agreeing to, and presumably understands, the process that will occur when the 6 months expires.

I believe most plans start right back up--i.e., this is merely considered a suspension of the deferral, not a redution to 0%. Corbel, for example, just uses the regs' "at least 6 months" language, presumably leaving it to adminsitrative determination how/when the deferrals will restart.