Hardship Withdrawal

[Guest M.A.]

In order to make a hardship withdrawal our plan states that it is allowed "when such Participant lacks other available resources". What must the participant do to show this?

[wsp]

In order to make a hardship withdrawal our plan states that it is allowed "when such Participant lacks other available resources". What must the participant do to show this?

It really is as much as you want them to. You're in control of how much effort that you want them to go through prior to taking a hardship. If you want this to truly be a last resort then ask for complete financial documentation. But, you are allowed to take them at their word, absence of any information to the contrary. By word, I mean that you would want a written statement that they have no other resources available and/or satisfaction of the hardship can't be obtained through insurance reimbursements, asset liquidation, cessation of contributions to the plan, plan distributions or loans, or commercial loans. The second choice (written letter) is certainly less work on your part and is allowable under the regs.

[E as in ERISA]

But since you have actual knowledge of plan loan availability, you should also make them take a plan loan first (if one is available, of course), etc.

[wsp]

But since you have actual knowledge of plan loan availability, you should also make them take a plan loan first (if one is available, of course), etc.

True, but I would imagine that requirement is dependent upon the severity of the hardship. Can't very well expect someone to pay back a loan if the cessation of contributions isn't enough to satisfy the hardship. And, if you know they don't have the means to pay back the loan then aren't you going against your loan policy in that instance as well?

[Guest M.A.]

E as in ERISA

No loan availability.

Thanks

[Guest M.A.]

Does commercial loans include maxing out credit cards as a source?

Thanks wsp.

[wsp]

Does commercial loans include maxing out credit cards as a source?

Doing so would simply put them in a worse position than before. The point of the hardship distribution is to eliminate the hardship rather than spreading it out over the next 10 years or so. And remember, if you're forcing this participant to jump through all these hoops to get a hardship distribution then you'll have to do the same for the HCE who comes to you to get one to help offset her kids tuition/room and board for her last year at Loyola. I don't think you want to go there... Have the participant write the letter, accept it as fact, and you're fine.

[Guest M.A.]

wsp,

Thanks Again.