safe harbor hardships from deferrals

[k man]

can you have hardships for something other than the safe harbor reasons (funeral expenses) from deferral source?

[R. Butler]

Sure, as long as the plan doucment permits.

§1.401(k)-1(d)(2)(iii) --

General hardship distribution standards--(A) Immediate and

heavy financial need. Whether an employee has an immediate and heavy

financial need is to be determined based on all relevant facts and

circumstances. Generally, for example, the need to pay the funeral

expenses of a family member would constitute an immediate and heavy

financial need. A distribution made to an employee for the purchase of a

boat or television would generally not constitute a distribution made on

account of an immediate and heavy financial need. A financial need may

be immediate and heavy even if it was reasonably foreseeable or

voluntarily incurred by the employee.

[k man]

that is another issue. it actually does not. it is a prototype and there are enumerated reasons. in order to allow funeral expenses you have to take the document out of prototype.

[QDROphile]

The issue for custom plans is how specific the plan terms or other written standards have to be in order to identify what quailifes. When the IRS first published audit guidelines, it said that the determination must be objective rather than subjective. Does that mean you have to have a specific list of hardships, similar to the safe list in the regulations, or can you have a description of characteristics and the withdrawal will be permitted if the circumstances fit the characteristics? Is the general definition in the regulation an objective definition itself? It is very broad.

[R. Butler]

The issue for custom plans is how specific the plan terms or other written standards have to be in order to identify what quailifes. When the IRS first published audit guidelines, it said that the determination must be objective rather than subjective. Does that mean you have to have a specific list of hardships, similar to the safe list in the regulations, or can you have a description of characteristics and the withdrawal will be permitted if the circumstances fit the characteristics? Is the general definition in the regulation an objective definition itself? It is very broad.

We generally do strongly recommend that if plan sponsor is not going to use the safe harbor definiton that they have laundry list of specific reasons for which a hardship will be permitted. That may be a little conservative & I've read you don't need a laundry list as long as the standards are objective. I guess we probably aren't creative enough to remove the subjectivity from standards; it just seems easier to recommend a laundry list.

§1.401(k)-1(d)(2) --

Rules applicable to hardship distributions--(i) Distribution

must be on account of hardship. A distribution is treated as made after

an employee's hardship for purposes of paragraph (d)(1)(ii) of this

section only if it is made on account of the hardship. For purposes of

this rule, a distribution is made on account of hardship only if the

distribution both is made on account of an immediate and heavy financial

need of the employee and is necessary to satisfy the financial need. The

determination of the existence of an immediate and heavy financial need

and of the amount necessary to meet the need must be made in accordance

with nondiscriminatory and objective standards set forth in the plan.

See section 411(d)(6) and the regulations thereunder.