hardship suspensions & new 401(k) plan

[Guest Barge Girl]

We were a wholly-owned subisidiary of Corporation X. We were purchased by Company Y effective July 2, 2002. Until July 2, we were a participing employer in the 401(k) plan sponsored by Corporation X. Effective July 2, 2002, we became a participating employer in the 401(k) plan sponsored by Company Y. The plans are not merging.

Corporation X's plan allowed for safe-harbor hardship withdrawals. A participant took a hardship withdrawal last November, and her contributions were suspended for 12 months.

Can the participant enroll in Company Y's 401(k) immediately? In other words, was she only suspended from contributing to Corporation X's plan? Or is she suspended from contributing to any 401(k) plan for a 12-month period?

Thanks in advance.

[Guest LWilson]

The participant will not be permitted to make any contributions to any plans maintained by the employer for 12 months (or 6, if amended for EGTRRA) after receipt of the hardship withdrawal.

Yes, they are eligible to become a participant in this other plan, but no, they may not make contributions until their suspension period is complete.

[MGB]

The rules being discussed here are only a safe harbor. A plan does not need to suspend contributions to prove that there was a substantial economic hardship. (I have personally been in a plan of a major employer that did not suspend.) However, if the employer wants to make use of the safe harbor approach, then LWilson's reply is correct. In other words, "what do the plan documents say?" Here, both the old and new documents would have an impact. Your description of them having safe harbor language may or may not include the "all plans of the employer" language.