Hardship Withdrawals

[Guest pentex]

I'm concerned. An employee in my company applied for a hardship withdrawal due to eviction reasons and the HR Manager approved it without getting any paperwork from him that proved this hardship. (HRM says the paperwork is "coming" in a few days.)

Aren't we required to have the proof up front before allowing the withdrawal? Can anyone tell me where to find this info?

[MWeddell]

The hardship withdrawal regulations don't specify what proof you need and when you collect it. If the IRS audits your plan thoroughly, they will expect you to have on file sufficient documentation to prove that the participant met the plan's hardship withdrawal criteria. While it's not an administrative practice I'd recommend and not a precedent I'd want to set, as long as you eventually get sufficient documentation on file, you should be fine.

[2muchstress]

Our document will say that the administrator may rely on the written representation of the participant, bla bla bla, in order to determine if a financial hardship is met.

I agree with MWeddell. You don't want to get in the habit of approving hardships without documentation, but I wouldn't sweat this one too much.

[MWeddell]

If your document has the rely on the participant's representation language, then this is part of the general resources test. You don't have examine bank statements, inquire into the participant's assets, etc. to see if he/she has another way to pay the for the financial hardship.

However, if you look at how the hardship regulations are structured, the participant's representation has nothing to do with establishing (i) that the need qualifies for a hardship withdrawal and (ii) the amount of the need (grossed up for taxes). I'd still urge a best practice of collecting documentation to establish those items.