Hardship W/D after a loan

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A participant in a salary deferral-only plan has inception-to-date deferrals of $25,000, an investment loss of $5,000, and therefore a balance of $20,000 at the time of a $10,000 loan (i.e., the loan was funded entirely from actual salary deferrals). All deferrals are post-1987. Six months later, the participant has repaid $300 in interest, $850 in principal, and the non-loan assets in the account have earned $1,000, so the participant’s balance (including the loan, now valued at $9,150) is $21,300. The participant has received no other loans or distributions. What is the current maximum hardship withdrawal available?

A) Lesser of i) $25,000 (inception-to date deferrals), or ii) $21,300 - $9,150, or $12,150 (i.e., current non-loan assets);

B) Lesser of i) $25,000, ii) $21,300 - $9,150, or iii) $10,000 + $850, or $10,850 (non-loaned deferrals plus repaid deferrals);

C) Other (explain).

[pmacduff]

A.) (It is my opinion that the hardship is really not related to the loan.) The participant would be eligible to take 25K if the account had that much $ and the plan allowed for it (deferrals since inception). That being said, you can't take what's not there. I say the max hardship is $12,150, the "cash" balance available. I know that this question has come up before because the hardship does not leave 50% of the balance as security for the loan but I believe I read somewhere that as long as the loan followed the terms of the plan at the time of the loan, you're ok to do the hardship subsequently. Sorry I don't have cites. Others??