F&C Hardships

[TPAnnie]

My plan does not use the Safe Harbor Rules for Hardship, rather it's a VS that uses Facts & Circumstances for Hardship. Problem is, I don't know how to apply F&C. Does anyone have any guidelines to determine if something qualifies based on F&C?

PP is facing legal expenses defending himself against criminal charges by the US Govt. He has no other assets and plan does not allow loans.

Any guidance would be most appreciated!

[QDROphile]

Whoever made the decision about the design of the plan should have given the design feature some thought and made at least general decisons about the criteria that can be applied to particular circumstances. Laughable, to be sure. The IRS manual states (or stated, the last time I looked years ago) that the hardship criteria must be objective. That is difficult to understand at the edges, so most plans have a list either in the plan document or a formal written policy and just stick with the list. The list is usually the safe harbor list, sometimes with embellishements. Case-by-case decisons are really tough on the plan administrator, so many administrators insist on a list.

[TPAnnie]

Thank you for your response. Moving forward, should we need to create a list of reasons, can anything be put into this list? For instance, could the list contain "for legal expenses" or "for an auto"? Are there any guidelines for what may included on this list?

Thanks!

[QDROphile]

Assembling a list is very difficult because circumstances vary. How can you measure the hardship relating to an auto? Does it have to be necessary to get to work, or is it a general need? Does it matter if the participant has children? How young? Is public transportation available? Should it matter where the person chooses to live? When is it better to get a new car rather than repair? If a car is being replaced, does the plan administrator have to judge the purchase?

[TPAnnie]

Thank Gov't for safe harbors! haha

I agree, compiling a list seems nightmarish and where to draw the line even more so. It's definitely easier to say here are the confines, fit into them, but not always possible when clients want to test the limits.