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The regulations state that a hardship event for medical expenses must meet the following criteria: Expenses for (or necessary to obtain) medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income); Deductible under 213d would mean amounts that the participant could deduct on Schedule A of their tax return. Publication 502 specifies that you may deduct medical expenses for "qualifiying relatives" A qualifying relative is a person: Who is your: Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of any of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child of any taxpayer for 2012, and For whom you provided over half of the support in 2012. I would double-check with your plan document provider, but if the participant meets the above requirements, then it seems it would be a hardship event.

In the case of the OP: the match is CALCULATED on a payroll basis. Unlike deferrals, it doesn't have to be DEPOSITED every paycheck. it can be, though. For example, if my pay is $5,000 a month and I defer $500 a month for the first six months only, I will only be getting $1,200 in match. (200/mo x 6 mos). If it was calculated annually, I would have a 5% deferral rate (3,000 / 60,000), and be eligible for the full 4% match of $2,400 (resulting in a 1,200 true-up) However, if the safe harbor match is calculated on a payroll basis, it must be deposited no later than the end of the calendar quarter following those payrolls. So, at minimum, you have 4 deposits a year. If it is calculated annually, you can deposit it any time during the year, and a true-up due before the end of the year following.

And don't forget to get an election before year-end if it will be funded after year-end.

Just a note to say thanks to all the folks who are reporting spam posts. Happily, only a few are being posted each day, and we're able to nuke them within a matter of hours and sometimes only minutes. To report a posted message that you believe is spam, click on the "Report" link that appears towards the lower-right corner of that message. The result is you'll be able to send a private message to the Moderator of that message board. The moderator then has the ability to delete the message. Your report also goes to the Super Moderators and to me (Administrator, Czar, Potentate, etc.), so there are additional people who are able to delete the message. It is rare that a spam post lasts long, due to all of those watchdogs. Thanks!

All these questions point to why you keep this stuff out of the plan. You may know this already but just in case. The plan will have to issue a 1099-R every year for the PS52 costs of the insurance. The insurance company can get you the PS52 costs. This creates an after-tax basis in the plan if I remember correctly. Adjust your fees for the new forms you have to do! Don't forget to track those PS54 costs will increase fees. Don't forget to change your fees to reflect the fact you will have a Sch A in the plan. What happens in a year the person doesn't have $18,000 in his 401(k) account? May not be a problem as they might have so much money now it will never get that low. But if it could happen does the plan sell stock to fund the payment? Could that require the sponsor to have to put money in the ESOP portion of the plan to keep it liquide just to this person can have life insurance in the plan? Maybe these kinds of questions will help convince the plan sponsor to keep it out of the plan. Unless of coursse the plan sponsor is pretty much the same person (ie business owner) as the person who wants to put the insurance in the plan. Can anyone tell I am not a fan of life insurance in qualified plans?