Loan/Hardship Issue

[Guest JHeller]

We have a participant who is in quite a tough spot. She is making next to nothing every week, her husband died as well as her son within the past year. She is running out of liquid assets and she already has an existing loan for $28,000 or so. The loan is nowhere near maturity and she essentially cannot pay it.

What options would she have at this point? Would this qualify as a hardship if it technically does not fit into the safe harbor rules? Could she avoid the 10% penalty if she had the funds in her account to take a hardhsip. She cannot take another loan; it would put her over 50% of her total account balance.

If anyone has any experience with this, I would appreciate any feedback, suggestions, etc.

Thanks.

[austin3515]

have her tell the employer in writing she is revoking her authorization to withhold laon payments from her paycheck, and that she is aware that this will be treated as a taxable distribution.

This should do it, in my opinion. Some trustees may not agree, but I think many would.

[Guest JHeller]

If it were treated as a taxable distribution, is there any way could she avoid the 10% early withdrawal penalty? She is under 59.5. Basically could we treat it as a hardship?

[Bill Presson]

If it were treated as a taxable distribution, is there any way could she avoid the 10% early withdrawal penalty? She is under 59.5. Basically could we treat it as a hardship?

Hardships are still subject to the 10% penalty (with a few exceptions), so even if you could treat it that way, it wouldn't likely make a difference.

[PensionPro]

There is an exception from the 10% penalty for distributions made to an employee after separation from service after attainment of age 55. This may or may not be relevant in this scenario.

[BG5150]

Amend the document to Facts & Circumstances hardship instead of safe harbor events.

[12AX7]

That amendment for Salary Deferral sources may not be possible if the plan is on a Proto or VS. What other sources of contribution other than Salary Deferral does the participant have in their account? Where feasible, the plan could be amended for in-service distribution of employer contribution or rollover sources.