Hardship

[HarleyBabe]

I have read the regs and am a bit confused. Say, a participant only has 5000 available to take from the salary deferral account for hardship, meaning their salary deferrals for the past years in aggregate are 5000 not including earnings, but, the participant needs 8000 for the hardship. There is a match source in the plan and the plan allows withdrawals from that source. Does that mean that even though the aggregate salary deferrals are 5000 that the remaining 3000 could be withdrawn from match, or, do the regs mean that regardless of the balances in the different sources, you can only withdraw 5000 period from salary deferral and match? Hope that makes sense.

I was always under the assumption that a hardship was determined based on aggregate salary deferrals regardless of which source it is withdrawn from. Maybe I am wrong, I hope for this participant's sake.

Help please.

Thank You.

[QDROphile]

The terms of the plan may allow in-service distributions from any source in accordance with the legal restrictions. It is possible to have terms to allow hardship withdrawal from matching contributions unless the matching contributions are subject to restriction. Restrictions on safe harbor contributions come to mind, but don't trust me on that.

[J Simmons]

QDROphile is right that if the plan document permits, hardships may be taken from matching contributions--at least those that are not QMACs.

HarleyBabe, Treas Reg § 1.401(k)-1(d)(3)(ii)(A) provides

The maximum distributable amount is equal to the employee's total elective contributions as of the date of distribution, reduced by the amount of previous distributions of elective contributions. Thus, the maximum distributable amount does not include earnings, QNECs or QMACs, unless grandfathered under paragraph (d)(3)(ii)(B) of this section

That is a provision expounding upon the limitation set forth in Treas Reg § 1.401(k)-1(d)(1) relative to elective deferrals, not matching contributions.

So on your facts, as long as the matching you mention is not QMACs, then $8,000 could be taken--$3,000 from the matching and $5,000 from the elective deferrals.

[HarleyBabe]

QDROphile is right that if the plan document permits, hardships may be taken from matching contributions--at least those that are not QMACs.

HarleyBabe, Treas Reg § 1.401(k)-1(d)(3)(ii)(A) provides

The maximum distributable amount is equal to the employee's total elective contributions as of the date of distribution, reduced by the amount of previous distributions of elective contributions. Thus, the maximum distributable amount does not include earnings, QNECs or QMACs, unless grandfathered under paragraph (d)(3)(ii)(B) of this section

That is a provision expounding upon the limitation set forth in Treas Reg § 1.401(k)-1(d)(1) relative to elective deferrals, not matching contributions.

So on your facts, as long as the matching you mention is not QMACs, then $8,000 could be taken--$3,000 from the matching and $5,000 from the elective deferrals.

Please forgive me but I am still confused, must be a mental block. The quote above state the distributable amount is based on elective deferrals, so how, if my elective deferrals in aggregate are only 5000 can they take another 3000 from match.

This is the argument in my office. Is the amount taken based on elective deferrals regardless of source? Your last paragraph seems to say you can take the extra 3000, therefore, it is not based solely on elective deferrals, but the quote says it is. Help.

[J Simmons]

Treas Reg § 1.401(k)-1(d)(1) is specifying what the limit on amounts that may be hardship withdrawn from benefits resulting from elective deferrals. Treas Reg § 1.401(k)-1(d)(3) specifies that it is the aggregate of elective deferrals, sans investment earnings and certain ER contributions otherwise treated as elective deferrals (i.e., QNECs and QMACs).

Suppose that the EE has made in the aggregate $5,000 of elective deferrals, but with investment earnings, QNECs and QMACs there is a total of $6,600 of benefits. Treas Reg § 1.401(k)-1(d) is saying that by reason of that $6,600 no more than $5,000 may be hardship withdrawn.

If there are also $3,000 matching benefits (aside from QMACs that are treated as elective deferrals), then nothing in Treas Reg § 1.401(k)-1(d) limits hardship withdrawing that $3,000 in addition to the $5,000 from the elective deferral account.

[HarleyBabe]

Treas Reg § 1.401(k)-1(d)(1) is specifying what the limit on amounts that may be hardship withdrawn from benefits resulting from elective deferrals. Treas Reg § 1.401(k)-1(d)(3) specifies that it is the aggregate of elective deferrals, sans investment earnings and certain ER contributions otherwise treated as elective deferrals (i.e., QNECs and QMACs).

Suppose that the EE has made in the aggregate $5,000 of elective deferrals, but with investment earnings, QNECs and QMACs there is a total of $6,600 of benefits. Treas Reg § 1.401(k)-1(d) is saying that by reason of that $6,600 no more than $5,000 may be hardship withdrawn.

If there are also $3,000 matching benefits (aside from QMACs that are treated as elective deferrals), then nothing in Treas Reg § 1.401(k)-1(d) limits hardship withdrawing that $3,000 in addition to the $5,000 from the elective deferral account.

Thanks for clarifying. I think I will go with this then.