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Non-safe harbor Hardship Withdrawal


Guest JDL

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Hello -

We have a 401(k) plan that allows for hardship withdrawals, using the facts and circumstnaces of the individual to determine whether an immediate and heavy financial need exists (non-safe harbor). We have a situation where an employee has asked for a hardship withdrawal to pay for the nursing home expenses of a parent. It appears that the parent is not a dependant of the employee. We're trying to decide whether this would be an appropriate situation to grant a hardship distribution. I realize this is a highly factual determination, but I was hoping to find at least one article that suggested that such a use could be made. Unfortunately, I have not been able to find anything suggesting a hardship withdrawal could be issued to pay for nursing home expenses of a parent. Anyone have any suggestions/ideas? Thanks!

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When a plan uses the general test for determining which events constitute a safe harbor, almost by definition it's going to have to address situations where there aren't precedents. Make sure you have the committee responsible for interpreting the plan document and that has Firestone discretion make the decision.

For what it's worth, this sounds immediate and heavy to me and I'd be inclined to grant the request.

No, I don't know of articles exploring what events meet the general hardship withdrawal standards.

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Thank you for the advice. I tend to agree that this appears to be an appropriate matter for a hardship withdrawal. Thanks again.

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Don't forget that the regulation requires that the determination must be made with respect to "objective standards set forth in the plan."

The IRS audit guidelines at one time stated that a "catch-all" provision for determining hardships is not an objective standard. I have not checked the guidelines recently. But that may suggest that plan terms that merely recite "immediate and heavy financial need" are not specific or "objective" enough to pass muster. Even though I do not favor using the safe harbor for "necessary to satisfy," I favor sticking with the list in Treas Reg section 1.401(k)-1(d)(2)(iv) or some other specific list because of the uncertainty over what constitutes "objective standards." If "immediate and heavy need" is not a "catch-all," what is?

I also do not believe that the audit guidelines are gospel. Make of them what you will.

Another good reason for a specific list is to take the heat off the adminstrator to answer this question each time someone comes up with a new situation.

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