Hardship Withdrawals

[Guest Scott Holechek]

Participants receiving a hardship withdrawal must suspend salary deferrals for 6 months. The question is, when can the participant start salary deferrals again? Is it exactly 6 months from the date the money was withdrawn from the plan or is it the next salary deferral commencement date as indicated in the plan adoption agreement or the salary deferral modification date indicated in the plan adoption agreement? The regs appear to be silent on this issue but we have been under the impression that a participant has to wait until the next commencement date. Any solid guidance on this issue?

[MWeddell]

I'm unaware of any IRS guidance on precisely how to measure the 6-month (or the old 12-month) suspension period.

Note that unless you're dealing with a plan intended to satisfy the 401(k) and/or 401(m) safe harbors, the suspension may be longer than 6 months as long as that complies with your plan document. If you're concerned about the issue, just make sure your plan document describes how the 6 months are measured and comply with it.

[Erik Read]

I would have to agree - add the language into the document, and comply from there - provided it isn't already in the document.

I would lean to the next commencement date, rather than exactly 6 months - that could become on of those administrative nightmares!

[Brian Gallagher]

we have always taken the stance of "as soon as administratively feasible" to resume deferrals.

i would say that he could start deferring in the pay period following the six months. it's the same as becoming eligible for the plan--say the first of the month is in mid-pay cycle. the person would start deferring the next cycle; the participant won't defer for half a pay period!

i wouldn't go as far as to say the next entry period as if the person decided to stop deferrals. it is a bit counterintuitive, because when a person takes a hardship, it is tantamount to stopping deferrals, but we always just do the next pay period