1099's/with holding not done on distributions.

[Lori H]

a possible new client received hardship distribution checks this year on behalf of the participants. the checks were made payable to the plan and then the plan issued the check to the participant. the institution holding the funds did not withhold taxes so if a participant needed a $3000 hardship that was the amount removed from their account. can the trustee go back and request additional funds to be removed to cover taxes? also, in previous years when distributions occurred, taxes WERE withheld but the trustee has no record of the 1099 reporting being done. the company holding the funds does not prepare them, and nor does their current TPA. what sort of exposure or liability does this cause the trustee?

[pmacduff]

There is no longer mandatory withholding on hardship distributions. I think it used to be that some investment firms had standard amounts (i.e., 10% withholding) on hardships just as part of their own systems & rules. The participant then had to "elect out of" the withholding. Some may still. Many of mine now have optional withholding elections right on their hardship forms.

As far as the previous years where 1099-Rs may not have been done...how long ago are we talking?

[Guest Pensions in Paradise]

For distributions which are not eligible for rollover (e.g. hardships), 10% withholding is required unless the participant elects no withholding.

[pmacduff]

Pensions - I beg to differ...do you have a cite? I'm 99% sure there is no longer any MANDATORY withholding on hardship distributions of any kind. I think many of the investments companies out there state that they will withhold 10% unless the participant elects out, but I don't think that is required by the Code.

[Guest Pensions in Paradise]

Sorry pmacduff, your 1% doubt wins this argument. See Code Section 3405(b)(1).

[pmacduff]

Thanks Pensions - I guess I still don't consider it "mandatory" withholding because the participant can elect out of it. (It's kind of like those Columbia House cards referenced in another thread where you used to have to send them back if you didn't want the tape sent automatically!!) I don't think a Plan Administrator or Trustee would suffer the same fate for not withholding the 10% that they can and do for the 20%. Anyway - thank you for the cite!