MoJo

Sage advice - as I said above, it may be "legal" but not a good idea to allow it - and not allowing it needs to be pursuant to set policy and documentation. By the way, it's discussions like this one - that point out something that most of us may not have experienced - that proves the value of this site and the community participating in it. As a result of this thread, we are reviewing our standard "hardship" policy we offer to our clients, and are revising it accordingly. Thanks all!

And you just made another fiduciary decision - and one requiring you to delve into the personal spending of your employee. I "think" it would be appropriate (read "legal") to approve or deny such a secondary request, but my preference would be to limit hardship universally through the plan documents or a hardship policy to one per "occurrence" or one per certain time period. That way, you eliminate any argument as to whether the money was spent "frivolously."

That is certain one way to look at it, and possibly the best way to look at it. But, the question can also be answered by looking at the two (or more) requests as discrete events. As indicated above, I wouldn't advocate that because of various logistics, but if the bill is still outstanding at a later date, a hardship condition would exist. It may be easier to consider the eviction hardship. In January, the participant asks for a $1000 - representing two month's rent to bring his rent current. He/she gets it, and blows it. Evictions take time so the participant is still there a month later, now owing $1500. Wold you give the participant only $500 more, or in order to prevent eviction, would the need be $1500?

It doesn't. But depending on timing, the participant must use "all available resources" to satisfy the need. If they want to claim the need hasn't been satisfied for purposes of getting the second hardship, the plan sponsor would also have to determine the disposition of the first hardship distribution (i.e. verify it was spent). I think the second hardship can be given - IF the plan sponsor verifies the first hardship distribution is no longer available to satisfy the need - BUT I can't imagine any plan sponsor wanting to get that involved. I would suggest tightening up the hardship policy to not allow such nonsense.

The difference between the other scenario and this one is that in the house sale falling through issue the hardship was properly granted - as a hardship condition existed at the time of the distribution. In the case in this thread, the hardship distribution was not properly granted, as no hardship existed, making it an least an operational error that needs to be corrected.

Amen!

That is one worthy of favorite status. My all time personal favorite though, is: I told you so, REPEATEDLY" - as you hand them a stack of printed emails....

It's never made "things" better, but it certainly has made *me* feel better - temporarily!

I think you answer your own question when you cite Section 401(a)(1)(B) - in that the question is one of "prudence" as one familiar with such matters would interpret it to be. There is a difference between "human error" and "sloppy work" that produces errors. Mistakes happen. Figure out why and correct accordingly. If it's "systemic" fix the system. If it's human error, then either train the "humans" producing the error(s) or do exactly what you say and implement a QC process (which might involve double checking). For our "document work, we do just that (100% peer review). For "outsourced" hardships, there are QC processes in place. I would interpret the "prudence" requirement to be the (highest) standards of professionalism in the industry. When it comes to the nuts and bolts services we provide, 100% error free is the goal, and any error triggers a review of root cause. Systemic errors (including process deficiencies) are changed - and a cost/benefit analysis is not done to determine if we make the change or not. We make the change. Human errors are also dealt with. Some teams have policies that "write you up" if peer review produces errors over a certain threshold and too many write ups can (and does) result in termination (with a lot of coaching between initial error and termination). Regardless of how little we charge a client, I can with almost certainty say that none of them would accept errors for a discounted price.

FGC: I think our point of disagreement is what is the "effect" of that tolerance. Yes, some would probably "tolerate" errors to save some bucks - but the "effect" is still an "imprudent" decision, and therefore a breach.

Sorry I disagree. "Close enough" is a per se breach of a fiduciary duty. Errors happen, but "acceptance" of a process that will tolerate x% errors is simply not acceptable. The "process" itself should be designed to not produce errors, and when errors occur, the failure in the process needs to be addressed. Anything less is philosophically not consistent with the concept of a "fiduciary." I would suggest an increase in fees to better ensure error free processing would be the "prudent" thing to do. Think about VCP or SCP filings - a pre-requisite to relief is ALWAYS to identify how the gaps have been plugged to best ensure it won't happen again. Saying, we've fixed it so no more than 5% will be in error in the future won't cut it - and that isn't even dealing with the higher standard of being a fiduciary!

"Airtight defenses" still cost a lot of money to prove in court....

If either B or C happens, I would suggest the RK has a problem. Either they are "deficient" in being consultative and educating the client, or the client is playing fast and loose with their responsibilities. If the former, a better RK will offer services and the current RK loses. If the latter, no matter what happens, the RK will get blamed and the client will go elsewhere (because the advisor said so...).

Again, I would suggest "it depends." "Outsourcing services (without accepting fiduciary responsibility) have been all the rage for a decade or so. We do hardship "determination" based on a hardship policy and a checklist that does not involve discretion as a contracted service. Same for loans, distributions, rollovers in, and a bunch of other things. If a transaction gets "bounced" because it doesn't meet the checklist doesn't mean the end of the story. We will discuss it with the sponsor with our take on whether or not it can proceed and if so, how/why/risks/etc. Sponsor may authorize or not - but it is part of the service we provide (without being a fiduciary). As such, we've "advised" the client that our checklist *is* what is required (although they have the option of not taking advantage of the service, they do not have the ability to modify the checklist). So we may be splitting hairs or playing semantics, but my experience is that RKs do provide non-fiduciary services that have the effect of ministerially (but yet consultatively) determining "eligibility" for all sorts of transactions.

This is a classic "it depends." Yes, most RK's are "ministerial service providers" but many plan sponsors rightly assume that the RK is keeping an eye on things (because, gee, that's what sales promised them, and that is a service they offer). In those cases, just cutting a check won't bode well for staying in business long.

It is a question of "what wold a "prudent expert" do in similar situations." That, in my mind requires an analysis of the costs and benefits of having a procedure that - by definition - would create errors, but also would keep costs low. I think the fiduciary would lose. The "cost" of the plan sponsor/fiduciary performing their duties correctly is never a consideration in determining whether the action was appropriate. Only costs to the plan would be an appropriate consideration. Per the OP's original situation, the "costs" to the fiduciary of actually being a prudent "expert" was nil. "RTFD" - in this case, "read the ... document" and make a decision (apply your best fiduciary judgment) Takes some time, but no costs.

I would suggest the changes of it coming to anything are low - UNLESS the participant did something stupid and called the DOL to complain about not getting the hardship after all. Then the PA may be in for a inquiry.... Hard to say if the DOL would even have anything to find should they do an audit of the plan. Based on the OP's comments, it appears as though the hardship was "caught" before it was processed, so no distribution took place. What would be the "red flag" to the DOL investigator absent a participant complaint?

I don't see the participant as being damaged. They didn't get what they weren't entitled to.

I think the participant is out of luck. A "hardship" existed at the point in time of it's request/payment. The tax consequences affixed at the time of distribution (and that wold be true even if "distributed" to escrow). I know of no way to "reverse" a hardship distribution. Timing is everything - perhaps a word of caution - delay the distribution until everything is set to close, then pay to have the funds wired.

Beware, people who do things like signing without reading often don't last long in their current positions - which means they *may* end up with one of our clients in the future!

I agree with RBG about what a court would do. The next question is what the DOL wold do with a PA (read "fiduciary") who approves hardships without reading them.... The participant is out of luck. The administrator is out of their league....

Against the government for what? Not sure I'd call this "failed" or "costly" - but even so, would you like a laundry list of "failed" defense department programs that cost not in the millions, but in the billions?

First, that $1,000 IRA doesn't tell you the costs associated that the provider is "eating" to get the account. Compare apples to apples. Second, $1,000 is a lot for many - that's why the program was created. Keep in mind a HUGE percentage of the population doesn't have $1,000 laying around to cover even minor emergencies when they crop up. Third, the myRA program was for people who did not have access to traditional financial services - and could build an account over time that could then be moved to a more traditional choice - with options. Third, it was only in operation for a little more than a year.... Finally, if we are ever going to get to the point that the vast majority of people in this country are self-sufficient in retirement, we have to have a solution that provides financial vehicles for those with little to begin with. The mantra I've been hearing (and repeating) is it isn't so much what you invest in, but rather how much you save that counts. Got to start somewhere.

Start-up costs for a program in operation for only a year. What does it cost to acquire and set up a 401(k) plan? We price on the basis of a five year break-even point. On-going cost for the program were estimated to be $10 million annually. Assuming no other enrollees, that would be $500 per account - assuming no other enrollees. The problem is, no "financial service provider" will talk to you when you only have small amounts of money. Merrill Lynch has a hard $250k minimum. Smith Barney is higher than that. The "self service" brokers (ETrade, etc.) don't provide any guidance and basically turn you loose to the investment world - and they charge fees on small balance accounts as well.

From the source you cite: "It's a paltry number when compared to the roughly 55 million workers who don't have access to an employer-sponsored retirement plan. But some retirement experts predict the number of enrollees will start rising fast. "I think Treasury was taking a very careful, measured approached to make sure everything works -- but the future of myRA is very bright," said John. [emphasis added] He expects awareness of the program to grow, bolstered by new state programs that promote myRA. The Treasury Department said it will do more next year to highlight myRA on government websites, as well as promote it through TurboTax." Consider the current administration's view of anything created by the past administration.....