Unforeseeable Emergency Distributions

[Guest Steven N]

We process unforseeable emergency requests based on participant's application asserting that unforeseeable emergency is a result of a sudden and unexpected accident. The accident often results in the particiapnt being unable to work and thus has fallen behind in paying utility bills, car payments, credit card expenses, etc. Generally, these expenese would not qualify as a severe financial hardship because, standing on their own, ordianrily would not qualify as a unforeseeable emergency involved. However, due to the fact that the participant had no significant control over the event that caused the participant to be caught in a financial bind, it appears that these expenses could be considered for an unforseeable emergency distribution. The question is for how long can the particiapnt continue to have distributions be made from his/her account to cover these ordinary expenses, including credit card payments?

[TLGeer]

First. remember that unforeseeable emergency determinations are based on individual facts and circumstances. To actually answer your question, we would need actual facts of one participant. Subject to that caveat, here are some thoughts.

There is no time limitation on unforeseeable emergency distributions. Does the rule require that a participant adapt to the lower income levels over time, by reducing expenses? Probably not, but I would be concerned about the issue. (The obvious counter is that if the participant is gone long enough to create any basis for that argument, then there is a disability and a severance.) How long has the participant been out and what is the prognosis for return?

Has there been a severance from employment? The participant is unable to work, but your post does not give enough detail to determine whether the participant is coming back or is gone for good. Is the participant receiving STD or LTD benefits? We also do not know whether the participant was an employee or a contractor.

Tom Geer