Does this plan have an impermissible hardship provision and if so, wha

[John A]

According to Announcement 94-101, a plan is not permitted to have a "catch- all" hardship category. One plan document I've seen lists "Other heavy financial need of the participant or the participant’s spouse or dependents" as a hardship category. Is this an impermissible provision? If so, is it enough to simply never use this provision?

[MWeddell]

The situation isn't black and white here. The issue is the hardship standard must be specific enough to not give the employer discretion (other than administrative discretion) in violation of the 411(d)(6) regulations. If the plan already has a favorable determination letter, then there's no need to be alarmed, and if it doesn't, fix the provision before submitting the plan.

Either eliminate it or incorporate more language from the general hardship standard in the 401(k) regulations.

The issue is still a live one even if the employer has never used the provisions. One still can't have a form of payment with employer discretion in the plan document.

[John A]

MWeddell,

Thanks for the response.

Since a hardship distribution or withdrawal is not a protected 411(d)(6) benefit, why must the hardship standard be specific enough to not give the employer discretion? Everything I see in the regulations says that there cannot be employer discretion pertaining to 411(d)(6) protected benefits, but nothing about employer discretion with respect to benefits that are not protected benefits.

There is a 5500 in our files that reports a 1991 determination letter, but I do not see a copy in our files (hopefully we can remedy that deficiency in our files and get a copy).

Would you agree with the following reasoning:

Announcement 94-101 notwithstanding, 1.411(d)-4 does not state that a plan

may not have a "catch- all" hardship category. What 1.411(d)-4 addresses is

the amendment of a plan to modify or eliminate the hardship distribution

standards in a plan. Further, 1.401(k)-1 says that the existence of "an

immediate and heavy financial need is to be determined based on all relevant

facts and circumstances", which seems to contradict 94-101. And, while

administrator discretion is generally prohibited, the "relevant facts and

circumstances" language suggests that the standards for determining the

existence do not have to be stated in the plan document. However, 1.411(d)-4

says that the employer can retain the authority to determine

whether objective criteria specified in the plan (e.g., objective criteria

designed to identify those employees with a heavy and immediate financial

need or objective criteria designed to determine whether an employee has a

permanent and total disability) have been satisfied. It does not state that

those objective criteria must be in the document. The administrator could adopt a written policy that will be used in determining that a

hardship exists, so that the appearance of discretion is removed.

[MWeddell]

John A, you asserted that a hardship withdrawal is not a 411(d)(6) protected benefit. I don't mean to split hairs unnecesarily, but a hardship withdrawal form of benefit payment is a 411(d)(6) protected benefit, although it's one that may be reduced or eliminated. Compare Treas. Reg. 1.411(d)-4, Q&A 1(d) with 1.411(d)-4, Q&A 2, esp. Q&A 2(B)(2)(x). Hence, the provisions later in the regulations about employer discretion do apply to hardship withdrawals.

Hence, the plan must state the objective criteria in the document for obtaining a hardship withdrawal. You've correctly pointed out that the employer can retain the authority to determine whether objective criteria specified in the plan (e.g., objective criteria designed to identify those employees with a heavy and immediate financial need or objective criteria designed to determine whether an employee has a permanent and total disability) have been satisfied. The distinction between the two levels of discretion may be difficult to make in practice, but that's the situation we've got.