Hardship Withdrawal question

[Guest bmurphy]

Participant took HW to prevent eviction from primary residence (was in default on mortgage). Plan allows for safe-harbor withdrawals only. Participant submitted a 2nd hardship request to pay back taxes which, I believe, does not meet the safe-harbor definition. Here's the wrinkle: when the participant depsoited the HW amount in his bank, the bank froze his account due to a relative forging his name on a credit card app & charging a great deal. The bank is holding the participant responsible. he cannot access the funds to pay the mortgage lender.

With the bank account being frozen, can the plan "re-issue" the original hardship amount? My concern is that it's alrteady been paid from the plan & it may be viewed as taking more than what is needed to meet the hardship. The employer really wants to help out this participant but we don't them to be deemed as going against the safe-harbor rules & plan document. Any guidance is appreciated.

Brian

[Guest Dook]

Here is what I think.

The participant's hardship has not been relieved, even though the Plan Administrator has fulfilled its part to the participant. The participant's residence still stands to be foreclosed on due to non-payment of back taxes. The participant still has a legitimate safe-harbor hardship situation. The Administrator could re-issue the 2nd distribution for taxes.

If and when the original 2nd distribution becomes liquid, should the participant repay the amount to the plan? I don't know. It sounds like a reasonable approach, but the ramifications are unknown.

A more conservative (smarter?) Administrator could simply state that they have fulfilled their obligation to the participant, and the fact that the funds are frozen is not their issue. This is probably what should be done as the Adminstrator's decisions are not supposed to be colored by emotional or Employer/Employee relationship issues.

Hopefully this provides some help. If others chime in we may even reach a concensus!

[Guest bmurphy]

Dook,

Thanks for the reply. The request for the 2nd HW for back taxes only included a report showing the taxes due plus penalties - nothing stating a foreclosure situation. If the taxes are in arrears but not at the point where a potential foreclosure exists then it would not meet the safe-harbor definition, correct? The first HW request included a notice of default from the creditor so that was OK.