Money Purchase Plan + Hardship Withdrawal

[Guest ColoradoKramer]

Hello, I've been with my company for 15 years. I am completely invested in both my Money Pension Plan and a separate 401K. One of my benefits is that my company contributes all the monies (15% of salary) to both plans on a quarterly basis. I have an option of contributing to the 401K, but have never taken advantage of that option.

Due to health reasons my husband is demoting himself at work and this will affect us financially. I have asked my company for a hardship withdrawal from my Money Pension Plan; however, I have been told:

"the IRS doesn’t allow hardship withdrawals on the Money Purchase Plan. On the 401-K plan, the only monies you can withdraw for hardship is contributions that you’ve made into the plan yourself."

One note here. I work for a company that is governed by a Board of Directors .... but the President and Financial Director are married to each other and sometimes rules change and/or rules are what they want them to be.

Question 1: If I'm 100% vested in the Money Purchase Plan, and the plan allows for loans (of which I have one outstanding that I am going to have to default on), is it true that the IRS does not allow hardship withdrawals for extreme financial hardship?

Question 2: The comment that I can withdraw for hardship on contributions that "I've" made into the 401K plan by myself ... I've never made contributions into that plan, so I am assuming this is telling me that I can't withdrawal any money from there any because the company is the one that contributed, even though I'm 100% vested?

Question 3: If I leave the company for another position, how long does the company have to give me full access to both the Money Purchase Plan and the 401K plan? I have seen this company tell ex-employees it will take ONE YEAR to withdrawal or roll-over the funds and I have also see them get the ball rolling so other employees can have access to their money within a one/two month period. Any suggestions on what my rights are?

Thanks!

[J Simmons]

#1: Yes, hardship distributions are not allowed to an active employee who is under the normal retirement age stated in a money purchase pension plan. For those that are over that age, or who have terminated but have yet have benefits in the plan, the plan may only allow hardships to the extent permitted in the plan documents.

#2: As for a 401k plan, it may allow hardships out of monies you contributed, called elective deferrals, or from company contributions (other than any 401k safe harbor contribution amounts). Many plans are designed to permit employees only to take hardships of amounts previously contributed by the employee.

#3: Plan provisions control this issue too. Although rare, a plan can require more than a year pass following termination of employment before the former employee may access the benefits. Administratively, the pension rules permit a plan up to 60 days following the plan year in which your distribution triggering event occurs (other than by reason of reaching normal retirement age) to process and then make the payout. The difference in what you've heard could be due to the time of the year that the different statements were made to other ex-employees. However, companies that are closely-held and run as you describe often fall prey to the tendency to apply the pension rules a bit ad hoc. So you might want to keep asking them, if you quit, for payout and prod them along, asking why others received their benefits more quickly, etc.

[rcline46]

It is true that the law prevents hardships from a Money Purchase Plan.

Most Profit Sharing/401(k) only permit hardship withdrawals from money contributed by the employee, which you have not done.

You said you already have a loan which you cannot continue to repay. If you stop paying on the loan and do the default, the law requires that you be taxed (in 2008 - the year in which you default) on the remaining balance of the loan.

If you should take the drastic step of terminating to get to your money, the speed of the distribution is actually spelled out in the Summary Plan Description for each plan. If it says 'as soon as administratively feasible' then you should have a distribution in 2-3 months at the latest - EXCEPT the company may hold distribution until they have contributed for the year ending 12/31/2007. This could be as late as September 15, 2008.

[Guest ColoradoKramer]

Thanks to both of your for your replies! The answers were provided to questions 1 and 2 I understood. However, I need to understand Question #3 a little more.

Question 3: If I leave the company for another position, how long does the company have to give me full access to both the Money Purchase Plan and the 401K plan? I have seen this company tell ex-employees it will take ONE YEAR to withdrawal or roll-over the funds and I have also see them get the ball rolling so other employees can have access to their money within a one/two month period. Any suggestions on what my rights are?

So there isn't any misunderstanding, I'm not considering leaving my company JUST to be able to get access to my funds. I have been in the process for about a year of looking for other employment and my hard search is starting to pay off. A new position with another company will happen sometime between now and June, obviously the sooner the better. My current company does not know that I will be leaving. My position is a vital part of the organization, but the volatile environment here due to being closely-held and run by the President (who is also the plan administrator) and his wife guarantees once I give my notice they might not work with me. Past history of how they have allowed access to the funds to past employees is checkered and as poster J Simmons indicated, the rules are pretty much predicated ad hoc depending upon their mood at the time. That was pretty much the reason of my first two questions ... I didn't know if that was an actual IRS rule, or if was an "ad hoc" rule just given at the time.

The company distributes 12% of your salary into the pension plan and 3% into the 401K plan every quarter. For those employees that are hourly employees and eligible for overtime, the company calculates all overtime at the end of the calendar year and does one lump distribution of the 12 and 3% contribution into the plans between February/March of the next year (i.e., overtime worked Jan - Dec, 2007, will be credited Feb - Mar, 2008). For two employees who left in 2006 and were eligible for overtime, they were not allowed a distribution until March of 2007. For two other employees who left in 2006, but were not eligible for overtime, they were allowed to roll over their funds into another account (our financial planner is paid for by the company and they have worked together with our President for 20+ years ... these two employees did not want our employer to be aware of how or what they did with their money); however, it took just shy of one year for them to process it as it wasn't too high on their 'to-do' list and the ex-employees had to keep pushing for it to get completed. A fifth employee, who was eligible for overtime left in August of 2007 under less than desirable conditions. He was basically told that if he doesn't quit he would be fired. So, he quit. They allowed him to take a full distribution of his Pension Plan and they processed it within a two/three month period. The only caveat is that they made him agree to leave his 401K plan alone for one year. I ASSUME so they can place the full 15% contribution for his 2007 overtime into the 401K account in Feb - Mar, 2008. (The employee is not sure why they made him agree to this either, he just agreed because he wanted/needed the pension money asap to help since he was unexpectedly unemployed.)

I am not eligible for overtime, so I wouldn't have any extra contributions that would need to be made for 2007 OR 2008 (since we are now in January and it might take a few months for everything to happen). This is why I'm asking what are the federal rules governing this are. Since the company has been so wishy-washy on what they allow, do I have a legally have the ability to obtain a distribution of my Pension (I would leave the 401K alone as well if needed) immediately upon employment termination, giving them the two/three months for processing?

I really do appreciate any help/advice you all can provide as I can't ask the financial planner who handles the account and is familiar with the plan summary (I did previously as was told that I had to ask 'them' [President & Financial Director/Husband & Wife] for the answer. Thank You!!

[pmacduff]

By law you have a right to the Summary Plan Description (SPD) upon request. If you do not have a copy, you should request one from the Trustees. That will spell out the distribution provisions of the plan as previous posters have mentioned. If you ask for a copy in writing and are not provided with one, you can contact your local Department of Labor office and they will for sure see that you get one. I know you may not want to "create any waves" at this juncture, but you really need to understand and be privvy to the plan provisions in order to know what the actual plan distribution provisions may be.

Account balance size can also dictate when a person is eligible for distribution by plan provision (i.e., lower, smaller balances might paid out quicker than those over $5,000).

Another thing to bear in mind is that the plan is valued (usually) at least once each year and includes all participants in the valuation. So...if an Employer is determining contribution amounts for some (even if not all) participants based upon a variable that is not known until after the year ends, that could hold up the process for the whole plan. As another poster mentioned, some clients don't make the prior year-end contribution until well into the next year and have set their distribution policies up accordingly.

By no means is this meant to be a defense of your Employer and any actions made contrary to the actual plan provisions. It's just a reminder that there are so MANY variables in Qualified Plans that can affect the situation(s) you describe....

[Guest ColoradoKramer]

pmacduff - Thank you for your reply. I did not take your comments as 'defense' against my employer at all, so no worries there. Just trying to figure out what is and is not REALLY legal in waters that are muddied by 'ad hoc' policies dependent upon emotion at the time such a request is made, so any and all comments are welcome!