What is a "Hair Cut" provision in Deferred Comp plans?

[Guest Joe Marcello]

Hello, Can you explain what a "Hair Cut" provision is in Deferred Compensation Plans?

[card]

A haircut is a provision in a deferred comp plan that typically permits the participant to request an in service distribution for any reason (ie, hardship not required), but with a penalty. The penalty is typically 10% or so "off the top" (ie the haircut). This 10% is forfeited.

The theory is that the right to withdraw is subject to significant limitations, thereby avoiding constructive receipt.