Plan distribution fees and hardship withdrawals

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Your thoughts would be appreciated regarding the following scenario:

A participant requested a hardship of $1,000. The plan allows hardships from the deferral source only, distribution fees are $50 (deducted from the participant's account) and the participant's eligible hardship amount is $1,000.

I have used round numbers to simplify (assume he lost money on his investments and has no residual earnings on his original deferral contributions).

Can you give the participant $1,000 as a hardship withdrawal and take the $50 distribution fee from another source or is the participant limited to $950 as a hardship assuming the $50 distribution needs to be paid out of the eligible hardship amount.

[John Feldt ERPA CPC QPA]

You should be able to charge the fee to another source.

Unless the document states otherwise, your plan does not have to limit the withdrawal to the deferral source, it only needs to limit the actual withdrawal amount so the amount withdrawn does not exceed the deferral contributions made. If your plan truly does limit the withdrawal at the source level, then it imposes an unnecessary restriction, but it's good that you are checking with the terms of the plan.