Rollovers as Hardship Distributions

[Guest William Lehman]

Can a plan allow for rollover money to be withdrawn as a hardship distribution?

[QDROphile]

Rollovers are not subject to in-service distribution restrictions. If the plan terms allow, they may be distributed upon request without need for any justification. But watch those plan terms!

[jlf]

Distributions on account of hardship are no longer eligible for rollover treatment.(All Plans)

I am in FULL AGREEMENT with QDROphile's statement. The Court of Appeals for the second circuit in FRANK V. AARONSON,however,disagrees. (CA 2ND 96-9456). This decision makes eligible rollover distributions from TSAs subject to the early distribution triggering events of IRC sections 403(B)(7)(A)(ii)and 403(B)(11).

The Court's decision flies in the face of the regulatory/statutory definition of an "eligible rollover distribution" of section 402©4; which states that an "eligible rollover distribution" is "any distribution........etc." The decision also renders the REPEAL of the specific triggering events that needed to be satisfied,prior to January 1,1993,for distributions to be afforded rollover treatment under 403(B)(8) meaningless. (see UCA'92).

I have brought this issue to the attention of the Hon. Bill Archer and the Hon. William Roth along with the members of their respective Committees. May I urge all to write to these two gentlemen in support of a STATUTORY CLARIFICATION THAT ELIGIBLE ROLLOVER DISTRIBUTIONS ARE NOT SUBJECT TO THE TRIGGERING EVENTS FOR AN EARLY DISTRIBUTION.

The Court of Appeals has decided that only an "early distribution" is an "eligible rollover distribution". This is rediculous! The decision is clearly contrary to the intent of Congress. (See Committee Reports for the UCA'92)

[This message has been edited by jlf (edited 06-14-99).]

[Kirk Maldonado]

Although the logical conclusion should be that rollover money can be freely withdrawn at any time, I believe that the IRS has issued PLRs holding that the amounts must be held in the plan for at least two years before they can be withdrawn (absent another event occuring that permits distributions).

[jlf]

Kirk,

The two year rule refers to profit-sharing plans. Have you read FRANK V. AARONSON? Do you agree with me that the Court just didn't get it?

[This message has been edited by jlf (edited 06-14-99).]

[Wessex]

The change in law regarding eligibility for rollover of certain hardship distributions applies ONLY to 401(k) elective deferrals; other types of contributions (except after-tax contributions, of course) distributed for hardship remain eligible for rollover.

In response to the complete irrelevancy to this topic and as discussed (belabored excrutiatingly?) in prior topics, many of us have read Frank v. Aaronson or are aware of the case and its holding and believe the court got it absolutely right.

[jlf]

Dear Wessex,

You should check the STATUTE!! DISTRIBUTIONS, FROM ALL PLANS, ON ACCOUNT OF HARDSHIP ARE NO LONGER INCLUDED IN THE DEFINITION OF AN "ELIGIBLE ROLLOVER DISTRIBUTION".

With reference to FRANK V. AARONSON, there are many benefit attorneys who disagree with the Court. I know of two.

Try checking around and I am sure you will also find a few. When you do please e-mail to me their names and addresses.

Remember, "no struggle, no gain"!!!

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[This message has been edited by jlf (edited 06-23-99).]

[Wessex]

Jlf, I believe you should recheck the statute and my previous post. Section 402©(4)© of the Code excludes from the definition of eligible rollover distribution "any hardship distribution described in section 401(k)(2)(B)(i)(IV)." Section 401(k)(2)(B)(i)(IV) permits distributions "in the case of contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies, upon hardship of the employee." (Note that plans other than profit-sharing or stock bonus plans cannot distribute 401(k) elective deferrals for hardship.) Section 402(e)(3) deals with the constructive receipt issue of amounts contributed via a qualified cash or deferred arrangement or via a salary reduction agreement under a 403(B) plan.

The new exclusion from eligibility for rollover of amounts distributed for hardship applies only to elective deferrals under a profit sharing or stock bonus plan that has a 401(k) qualified cash or deferred arrangment. No other contributions are affected by the change in law.

[This message has been edited by Wessex (edited 06-25-99).]

[jlf]

This question is addressed at the "RETIREMENT PLAN DISTRIBUTIONS" column.

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