Hardship Distribution Suspension

[Guest JFBEARB]

A partcipant elects and receives a hardship distributiion. The suspension period is six months. What is the re-entry date?

This plan has dual entry (January and July). Would he resume immediately upon completion of six months suspension, or would he resume on the entry date following satisfying six months of suspension?

Example: Hardship distribution 7/15/02.

Would he resume on 1/15/03 or 7/1/03?

I cannot find anything that clarifies the re-entry requirements.

[jaemmons]

You should let them recommence deferrals immediately. However, this is predicated upon how often employees can make deferral election changes. If the document states every payroll period, then they can start the next available payroll. If monthly,...

[MWeddell]

It depends on what the plan document says.

For plans designed to satisfy the 401(k) and/or 401(m) safe harbors, the suspension period may be only 6 months, but for most 401(k) plans the suspension period for hardship withdrawals must be at least 6 months but the plan may impose more onerous conditions on the hardship withdrawal.

If you're asking what do the hardship withdrawal regulations require assuming a plan uses the safe harbor hardship standards not the general test, then your answer is 1/15/2003 -- nothing in the regulations hints that one must wait until the next semi-annual entry date.

[jpod]

Following up on this old discussion.

Assume neither the plan document, spd nor any other communication says anything other than that elective deferrals will be suspended for 6 months following a hardship withdrawal. In other words, there is no direction one way or the other as to whether the participant's pre-withdrawal deferral election will be reinstated automatically, or whether a new election will be required. Assume further that the pre-withdrawal deferral election was not reinstated automatically at the end of the suspension period. Do you think you can make the argument that there was no operational error here, because as soon as the six months had elapsed the participant could have made an affirmative election to contribute a specified percentage?

If the consistent practice has been to require a new, affirmative election, do you think that is enough to support the position that there is no operational error?

The contrary argument is that absent a specific plan provision or administrative direction to the contrary, the only reasonable expectation of the participant is that his deferral election will be reinstated automatically, thus there was an operational error (and the fix is that the participant gets the ridiculous windfall of an employer QNEC contribution).

[BG5150]

I would say it would be immediate. The hardship agreement (probably) said that deferrals would be "suspended" rather than ceased.

[MWeddell]

jpod,

I think the plan document in your situation doesn't expressly address whether contributions automatically resume or whether the participant must affirmatively elect to have contributions resume. In that situation, either interpretation, if made by the plan administrator or whoever has discretionary authority to interpret the plan document, likely would not be arbitrary and capricious. More generally, I believe that there are plenty of documents that are unclearly worded where contributions are suspended at least 6 months but don't resume without the participant taking affirmative action.