Hardship Withdrawals and Documentation

[Guest Benmark]

Has anyone out there heard of any 401(k) plans that use the safe-harbor definition of a hardship withdrawal that do not require back up documentation for that withdrawal other than the employee's self-certification?

If an employer adopted this approach (no backup) what risks would the plan take? (The employer would make sure that all other provisions of hardship withdrawals were followed, just not requiring documentation.)

Thanks

[MWeddell]

The structure of the regulations makes clear that one can rely on the employee's written representation (unless the employer has actual knowledge to the contrary) to satisfy the resources half of the hardship regulations but the representation has nothing to do with whether the hardship distribution is for a heavy and immediate financial need. I think a plan sponsor would be running a real compliance risk by not obtaining any documentation substantiating that the event really did occur.

I've had a client audited by the IRS where the agent requested to examine the hardship documentation. However, a quick check of the IRS audit guidelines at http://www.irs.gov/prod/bus_info/tax_pro/i...5951a.html#ss26 didn't list this as a recommended action step.