Safe Harbor Withdrawals 59 1/2

[Guest Sbart62]

I have an active participant (age 59 1/2) who wants to take money out of a Safe Harbor 401K. The plan contains 3 different contributions: 1) Safe Harbor 3%, 2) Employee Deferrals, 3) A P/S discretionary from before the plan was a 401K. The only type of in-service withdrawal that the plan document discusses is the "Hardship". There is no mention of an in-service at age 59 1/2.

Am I correct that even though the participant is 59 1/2, she cannot remove her Deferral balance because it is not in the plan document? Also, the plan has a loan provision so would that not have to be used before any "Hardship Withdrawal" could possibly take place?

Any opinions would be greatly appreciated.

Scott

[saabraa]

You're correct about her inability to remove her deferral balance.

As for hardships, one of the rules from the old regs which is presumably still present in the newer regs is that participant must max out on any permissible plan loans, UNLESS doing so would increase the hardship. For example, having loan payments to make might not be feasible given her budget. Or if the hardship is needing funds to purchase a home, it could make it more difficult to qualify (not sure if that would be construed as "increasing the hardship.").

[Tom Poje]

on the other hand, I have heard it said that a loan could be denied to a bad credit risk (e.g. the plan could refuse the loan if there is a reasonable chance it will not get paid back) a person seeking a hardship (depending on the reason) could be considered a bad risk for paying back a loan.

[Guest Sbart62]

Thanks for your responses.

I have since found buried in the Summary Plan Description the following: " Distributions from amounts attributable to your salary deferrals are not permitted before age 59 1/2 EXCEPT in the event of death, disability or separation from service". So while the plan document has no mention of this, here it is in the SPD.

I've always been under the assumption that the plan document takes precedent over the SPD but since the SPD is distributed to each eligible employee, I'm starting to question this.

Any thoughts?

[QDROphile]

Depending on how literal you are, the words you mention do not say that an in-service distribution is allowed after age 59 1/2, so it does not contradict a plan that (i) has no provision for distributions after age 59 1/2, and (ii) probably has a general proscription on in-service distribution. You can substitute any age in the sentence and get the same result, consistent with the plan terms.

One may speculate that the SPD was created from a form. While the editing got the basics right, that fine detail did not get the proper attention for conformity.

You should ask what the plan sponsor would like. If the plan sponsor wants age 59 1/2 distributions, amend the plan and the SPD.