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As support, here's a snippet from the 2004 ABA Q/A with the IRS: 19. §401(k) – Hardship Distributions A participant wants to know if the purchase of principal residence qualifies as a hardship if she is using the proceeds to 'buy out' the equity on her current home from her ex-spouse? Proposed response: Yes, because the dwelling is her principal residence and she is purchasing an interest in it that she didn’t own before. IRS response: The IRS agrees with the proposed answer. The participant is purchasing a part of her principal residence.

Is it actually a new plan? In other words, did you terminate the Vanguard plan, or are you simply transferring the funds to a new company? If old plan is terminated (and you've waited the requisite 12 months to start a new plan) then it should be 002. If you're just switching companies then the Plan Name should remain the same and the Plan # should still be 001 (because it's the same plan).

You are not starting a new Plan, you are simply restating the existing Plan to a new Document provider (E-Trade). Please make sure you implement this properly, the penalties for messing this up are very severe.

Presumably what you want to do is restate the Plan from the Vanguard document to the E-trade document retaining the same Plan number 001 and simply transfer the assets from one brokerage to the other, unless you already have a plan document that isn't brokerage house specific in which case you just need to transfer the assets.

I think you should hire a TPA that knows what they're doing so you don't get bad advice and get in big trouble down the road.

If it's discovered under audit, I think you are looking at Audit CAP and not VCP.

I think your first statement was the answer to your question, LOL, as these situations often get treated like they are personal bank accounts rather than QPs, IMHO.

Thank you both for the valuable information. I was reading about audit CAP on the IRS website but was a bit unsure if this issue would fall into the scope of this correction method. Notice 2023-43 is exactly what I was looking for. Cheers

Also Conway Twitty's van !

Indeed. And if it wasn't under audit, it would be VCP. IRS Notice 2023-43

Under the code yes, but what does the document say about compensation?

A value of deciding claims using only a § 401(k)(14)(C) certification is that the plan’s administrator is removed—and its service provider too is removed—from discretionary decision-making about questions of the kind Ilene Ferenczy and Paul I describe. Instead, a plan’s administrator designs (or approves its service provider’s design of) the claim form to state each of the available deemed hardships, and not ask for any supporting information. Likewise, a service provider designs the participant website’s software to not receive any information beyond the online claim form. The claims procedure can be simplified (mostly) to approving a claim if the form is completed “in good order” and signed under penalties of perjury. Or NIGOing a form not filled-out or not signed. But shouldn’t an employer that serves as its plan’s administrator (and service providers too) welcome a procedure that gets rid of discretionary decisions?

I think for the Line 14 (FTAP) the PFB used to offset MRC should not have any impact. The 5500 Schedule SB instruction doesn't mention any adjustments, and it seems pretty clear. However, for the Line 15 (AFTAP), I would take it into consideration.

Let’s assume that whatever survivor annuity or other death benefit the plan provides a surviving spouse to meet ERISA § 205 is inapplicable or exhausted. And let’s assume that, in the circumstances, the plan provides a benefit for which it might matter to identify a beneficiary. An ERISA-governed plan’s administrator must administer the plan “in accordance with the documents and instruments governing the plan[.]” ERISA § 404(a)(1)(D). That means the governing documents, not the summary plan description (unless the plan sponsor specified the SPD is a governing document). See CIGNA Corp. v. Amara, 563 U.S. 421, 50 Empl. Benefits Cas. (BL) 2569 (May 16, 2011). But let’s imagine the plan’s governing documents too might be ambiguous. (The ways plan sponsors make plan documents, especially when using IRS-preapproved documents, often result in provisions that do not make sense using only textual interpretation.) Plan documents typically grant the plan’s administrator broad discretion to interpret a governing document and the plan’s provisions. Many BenefitsLink mavens use the shorthand RTFD for Read The F . . . abulous Document (as RatherBeGolfing recently explained it). I propose a new shorthand: ITFD for Interpret The Fouled-up Document. If the plan’s documents grant discretion, courts defer to the administrator’s reasoned interpretation. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 10 Empl. Benefits Cas. (BL) 1873 (Feb. 21, 1989). Not seeing the whole set of documents you mention, I won’t speculate about the interpretation. This is not advice to anyone.

Avoiding unwelcome information about an employee’s living situation is among the reasons an employer/administrator might prefer that claims for a hardship distribution be processed from a self-certifying claim form.

As long as no HCE has a higher rate than any NHCE then the test should pass on a current/contribution/allocation basis.

I can't *imagine* your plan document requires it to be tested for nondiscrimination solely on a benefits basis. Do your rate groups on an allocations basis, and all the rate groups will pass > 70%. And then (except for the random possible exceptions which we as a pension community will remind you of in subsequent comments) you should be good.