College Tuition & Hardship

[Guest SWH]

Have a participant with a kid in college. Just paid spring tuition with CC and requesting hardship. No problem with the spring 2010 tuition. However, particpant is sending in estimates for Summer 2010 and Fall 2010 based on language that says "tuition, related eductional fees, room and board expenses for the next twelve (12) months."

I have always read this that if you have to make a payment now then the portion of the payment that would be considered hardship would not exceed 12 months of expense. Participant is interpreting that he can estimate the next 12 months and get h'ship on the entire year at this time. I don't see how you can have an immeidate and heavy finanicial need for an expense that you have not incurred OR been billed for yet.

The argument is coming up because the participant does not want to be doing multiple h'ship distributions throughout the year and restarting his 6 month deferral suspension. He wants to be able to defer for at least a portion of the year and receive the company match. Which goes back to my argument of there being an immediate and heavy financial need?

Plan uses safe harbor hardship definition and safe harbor test for need.

Am I being too strict here?

[GMK]

Am I being too strict here?

Personally, I don't think so. I see it as gaming the system.

The 401(k) plan is a retirement plan, not an education savings plan.

Is the participant suffering a financial hardship if she/he can afford to make deferrals?

But then, if a retirement plan allows non-retirement distributions (hardships and loans) in the first place, I'm probably not the one to ask. Sorry if I sound grumpy today.

[Guest Sieve]

SH hardships are deemed to be a heavy & immediate financial need. Period. End of inquiry. Makes no difference whether or notthe individual actually has the need. And the suspension of deferrals is one of the requirements of showing that the distribution is necessary to meet that need--otherwise, a review of the participant's assets is necessary.

The distribution ought not be made unelss there is a bill/invoice/statement for the year. Can't pay out a hardship on the if-come.

Tell the participant to just defer greater amounts in the months when he can defer to make up for those months when he cannot.

[GMK]

Tell the participant to just defer greater amounts in the months when he can defer to make up for those months when he cannot.

I would take Sieve's advice regarding SH hardships.

Of course, with hardship withdrawals in the spring, summer, and fall, there won't be any months left when the participant can defer any amount ... which appears to be the answer to the participant's argument in the OP.

[Guest Sieve]

Perhaps you can have multiple semesters billed simultaneously. I've seen it before. That way, there'd be deferrals for 6 months during the year. If not, then, unfortunately, c'est la vie--that's the cost of being able to take a hardship distribution under the SH rules. If he wants to defer, then he just can't take a SH distribution.