Non Safe Harbor and Safe Harbor Hardship Withdrawals

[Guest schmidtfit]

Our Summary Plan Description does not mention a 6-month waiting period to restart contributions after taking a 401(k)hardship withdrawal. Our hardship withdrawal form, however, does mention the waiting period for safe harbor plans.

In reading our contract, I cannot find where it states whether or not we are safe harbor (obviously, I'm not well-versed on 401(k) contracts); but we do have an EGTRRA Amendment which states the amendment "is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder."

Do plan designs exist that exempt participants from this waiting period?

Thanks!

[MWeddell]

Yes, such plan designs exist.

Your plan document may specify that the general resources test is used by paraphrasing Treas. Reg. 1.401(k)-1(d)(2)(iv)(B). If so, no suspension at all applies.

[austin3515]

Agree with above, but if I'm not mistaken the burden of proof in that sort of a situation is much greater on the administrator to ensure that there is a hardship.

You don't have to be safe harbor, but as the name would imply, it is much "safer." I'd consider amending.

Unless you are an employee, in which case this is more beneficial to you.

[QDROphile]

Just to keep the voting even, I don't think that a safe harbor design is that much safer and it is an imposition on an employee (although much less of one now that the suspension is 6 months and many plans are increasing the plan-imposed limits on elective deferrals). I wouldn't push for amendment.

I have an old fashioned bias that favors use of brains over automtic systems. But use your brain to decide if the safe habor suits your situation better.

More important, your forms should fit the plan rules. Having conflicting but inapplicable information in the form (even if the inapplicable stuff distinguishes itself to a careful reader) will cause confusion or trouble.

[MWeddell]

I like the general resources test if the plan adminstrator is relying on the employee's representation unless it has actual knowledge to the contrary. If the hardship withdrawal form is prepared correctly, there's no extra administrative burden and still no mandatory 6-month suspension.