hardship, final regs and safe harbor contributions

[Guest JBeck]

Notice 98-52 provides that in a safe-harbor 401(k) plan that hardship distributions are not a distributable event for contributions other than elective contributions. Presumably this means that the plan cannot permit safe harbor employer or matching contributons on account of hardship.

I tried to trace this restriction in the final regs but could not find it? Can anyone else? I realize this is an interpretation of Code 1.401(k)(12)(E), but I would not read it this way without the interpretation.

[jaemmons]

In the definitions sections to both the 401(k) and 401(m) final regulations, they state that QNEC's and QMAC's are subject to the nonforfeitability and withdrawal restriction requirements under 1.401(k)-1© & (d). QNEC's and QMAC's cannot be withdrawn for hardship purposes, unless they were "grandfathered" prior to July 1, 1989. Safe harbor non-elective contributions are defined as QNEC's in 1.401(k)-3(b) and safe harbor matching contributions are defined as QMAC's in 1.401(k)-3©. Therefore, since the safe harbor requirements went into effect after 1989, they are not "grandfathered" and cannot be withdrawn from the plan for hardship purposes pursuant to 1.401(k)-1(d)(3)(ii).