Can the 401(k) hardship safe harbors and facts-and-circumstances tests

[John A]

Can the safe harbor and facts-and-circumstances tests for determining whether a hardship exists and for determining whether a distribution is necessary to meet the hardship be mixed in the following ways (that is, can a plan document be written to allow for the following):

1) The hardship is for funeral expenses (a facts-and-circumstances hardship) but the safe harbor is used for determining whether or not the hardship is necessary (that is, the sponsor does not check other resources of the participant, but does suspend deferrals for 12 months, etc.)

2) The hardship is post-secondary school tuition (a safe-harbor hardship) but the plan sponsor checks the resources of the participants to determine if the distribution is necessary to meet the hardship (that is, does not suspend deferrals, etc.)

I am confused as to whether there is one set of safe-harbor rules which must always work together, or whether there is a separate set of safe-harbor rules for each of the 2 tests that can be used separately.

Any cites would be greatly appreciated.

[KJohnson]

Has anyone ever dealt with John's quesiton?

I have a client that wants to start making hardship distributions for funeral expenses which the regs give as an example as an immediate and heavy financial need but do not list as one on the safe harbor alternatives.

What I wonder is whether we could we amend out of the safe harbor for the "immediate and heavy financial need" to cover this but still keep and rely on the safe harbor provisions for the "distribution being deemed neccessary to satisfy the financial need" so we don't have to go through the "resources checkk"

[John A]

http://www.benefitslink.com/cgi-bin/qa.cgi...id=26&mode=read

[KJohnson]

Thanks,

Glad to see the confirmation because I told them fifteen minutes ago that they could do it.

[John A]

You're welcome, but I still think it's a bit confusing. While I think it can be done, I also think it might be necessary to get a determination letter on the document (or amendment) containing the mixture, which sort of defeats the purpose of the safe harbor in the first place (the purpose being that IRS approval is not necessary).

[KJohnson]

I agree and will flag it in the request for the determination letter.