Hardship proof of payment

[Guest Twinky]

The participant has a loan. The plan only allows for one loan. The participant now wishes to take a hardship distribution under the safe-harbor provisions for hardship, for medical bills. The bills have already been turned over to collection.

The client asked several questions, and please let me know if I am wrong with my responses to the client:

Exhausting all other options/loans from the plan is the only requirement? In other words, they do not have to obtain denials from outside of the plan (i.e., banks)? My response...correct

Loan payments will continue to have to be made? My response...correct

Personal review of the medical bills is required? I told the client that would be the prudent thing to do. (although I do not see where it is required) I also suggested copies of the EOB's.

Does the participant need to provide proof that the money was used to pay the medical bills, or is he on his honor to do that? My repsonse...I believe he is on his honor. I have never seen an employer go through proving it was used for its intention.

I would like to know what your thoughts are on this...thx

What if I suspect he may be trying to get the distribution prior to the issuance of a QDRO? My response...the spouse needs to sign off on the hardship distribution, which should eleviate the concern. As well the distribution forms ask the question is a QDRO pending.

I also told the client that the participant may not contribute (deferrals) for 6 months after the hardship.

Please let me know if there is any disagreement to my responses. In particular, the proof of payment of medical bills and the QDRO question.

Thank you so much!

[Guest Pensions in Paradise]

Your responses appear correct. The one thing you may want to research, and I believe there may be prior posts on this issue, is whether the employer will be violating any HIPAA privacy rules if they require the employee to submit copies of medical bills.

[RCK]

Right--don't have to obtain denials.

Yes, have to make loan payments. See promissory note.

We require EOB's for medical.

We don't require proof of payment. I believe that some employers do--I was a seminar where the topic came up.

QDRO issue--what does the plan say? Ours says that we cannot hold up distributions until we have received an order signed by the court. There have been istuations when we did not act as promptly as we mihgt have, waiting for a restraining order.

And to PIP's comment--I think that the fact that the participant is voluntary sending it in removes most of the HIPAA issues. I probably would not leave it lying on the printer in the break room though.

[Guest Twinky]

Thank you everyone!

I did research the HIPAA privacy rules. Here's what it stated...

"Typically, the HIPAA privacy rules will not apply to a 401(k) plan because a 401(k) plan typically is not a covered entity. Participants are permitted to disclose their own health information to the plan. But health information held by your company's health plan or a provider generally would be subject to HIPAA and could not be disclosed by the health plan or provider to a 401(k) plan without the participant's authorization. Once information is provided to the 401(k) plan, whether by the employee or by a health provider pursuant to an authorization, it will not be subject to the HIPAA privacy rules."

Again...thank you for your input!

[SteveH]

The only thing that i can add is that I am pretty sure if the employers knows the payment won't be for a qualifying hardship then they can't let the hardship happen. If an agency challenged this how it would be proved, I have no idea.