403(b)(7) Hardship - Possible Eviction

[Guest Pete Joachim]

A participant (30 yrs old) in a 403(b)(7) lives with parents who own the house and pays the mortgage - so this is the participant's principal/primary residence. Father loses job and may have problems paying mortgage and may get a foreclosure notice. The participant requested a hardship w/d to prevent foreclosure. It will be denied until an actual notice is provided, but should the family receive the notice down the road, will this qualify as a hardship?

Any thoughts are welcomed...

[Peanut Butter Man]

The new Final 403(b) Regs contain Treas. Reg. 1.403(b)-6(d)(2), which states:

"(2) Hardship rules. A hardship distribution under this paragraph (d) has the same meaning as a distribution on account of hardship under §1.401(k)-1(d)(3) and is subject

to the rules and restrictions set forth in §1.401(k)-1(d)(3) (including limiting the amount of a distribution in the case of hardship to the amount necessary to satisfy the hardship).

In addition, a hardship distribution is limited to the aggregate dollar amount of the participant’s section 403(b) elective deferrals under the contract (and may not include

any income thereon), reduced by the aggregate dollar amount of the distributions previously made to the participant from the contract."

Treas. Reg. 1.401(k)-1(d)(3)(iii)(B)(4) states that a distribution is deemed to be on account of an immediate and heavy financial need of the employee if the need is for payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence.

The house is the employee's principal residence, so that part of the test is met. Question is whether the payment will prevent the eviction of the employee, or prevent the foreclosure on the mortgage of that residence.

[Guest Pete Joachim]

Agree w/above - the key point that I was questioning was the fact that the person requesting the hardship does not own the house or necessarily pay the mortgage, even though it is the participant's principle place of residence. Is it truely a hardship for the participant? Or is it a hardship for the participant's parents? Does it make a difference if the parents are treated as "dependents" by the participant?

I tend to agree that it is a hardship, but had not really come across these facts before.

Whether receipt of the actual hardship dollar amount will prevent foreclosure or eviction or just be a temporary delay is another issue - one that may be beyond the employer's need to know.