Hardship withdrawals - administrator resposibilities?

[Guest LisaPA]

I am a CPA with limited experience in the administrative end of 401(k) Plans. My client has been approached by a plan participant requesting a sizeable hardship distribution for medical expenses. My client is sure that medical expenses are not the real reason for this request. I wll tell the client to require a loan before the hardship distribution (the plan permits both). However, I was wondering what the administrator's responsibility was here. Under the safe harbor test, is a written statement from the participant that the amount withdrawn does not exceed the medical need enough? Any comments are appreciated.

[bzorc]

You might want to request the participant supply proof of hardship, such as, in your case, copies of bills that will not be paid by insurance. Then you can verify amounts and that it is a true hardship.

Hope this helps.

[actuarysmith]

Our firm has the participant sign and date a form certifying that the financial need cannot be reasonably met with other means and that it meets one of the safe harbor 401(k) hardhip definitions. In addition, we have a line for the plan sponsor to sign as well.

The form asks the participant to provide some form of documenation (statements, invoices, eviction notices, etc.)

If YOU are making the determination, then you risk becoming a plan fiduciary.

[Guest LisaPA]

Thanks for the replies. I will advise my client to request some proof of hardship, but I was wondering if anyone has seen this really cause a problem for a sponsor? Are there regs that require such proof? The safe harbor provisions don't seem to require the sponsor to have proof of hardship (bills, etc.). If the participant resists providing anything other than a signed statement, what recourse does the sponsor have? Thanks for any additional comments.