Employer discretion in hardship dist?

[Guest mm9999]

The SPD for a 401K plan does not address hardship distributions. Assuming the complete plan document also fails to address the topic, what discretion would an employer have in responding to a hardship distribution request? What if the request came from a former employee?

[QDROphile]

IRS audit guidlines say that hardship criteria must be "objective" and I don't see how anything can be objective without some established, and prefereabley written, standards, whatever "objective" may mean. The plan document will say something. Start there and see what you can come up with. Maybe competent professional advice is in order.

[Guest Pensions in Paradise]

Just to clarify on the previous post - the plan document must specify the conditions under which a hardship withdrawal can be made ASSUMING the plan allows for hardship withdrawals. A plan is not required to allow for hardship withdrawals, so if the document does not contain such a provision, a hardship withdrawal is not allowed. Of course, the plan sponsor can always amend the plan to allow for hardship withdrawals.

Also, in response to your second question, a terminated employee generally does not need to use the hardship withdrawal. Termination of employment is a distribution event, so the terminated employee should be able to withdraw his vested balance at any time.

[Guest mreynolds]

Must the employer amend their 401(k) plan to add the 2 new categories of financial hardship (for hardship withdrawal purposes), or is it good enough to provide that a "financial hardship" will be limited to the 4 previous categories and "such other deemed financial needs as published from time to time by the Commissioner of Internal Revenue" or something like that?

[MWeddell]

The 411(d)(6) regulations indicate that employer discretion is not allowed for hardship distributions. That's the source behind the IRS audit guidelines.

mreynolds, in your situation I believe that the plan document is fine as drafted and does not have to be amended.

[E as in ERISA]

Be careful of your wording. "Published by the Commissioner" is usually a catchall phrase used to indicate that the IRS can publish rulings, notices, etc. on the topic. The Treasury Department and IRS are usually jointly involved in regulations -- with Treasury being the lead on the "publication." Funeral expenses and casualty losses were added by regulations. So make sure that your wording is such that it includes them.