Eliminate Hardship

[Guest Tom:]

Can hardship distributions be eliminated from an ERISA 403(b) plan? Does tax code regulation 1.411(d)-4 Q&A-2(b)(2)(x) provides an exception to the ERISA 204(g) cut-back rules for 403(b) plans? Is a 403(b) plan considered to be a CODA or profit-sharing plan under this regulation?

1.411(d)-4 Q&A-2(b)(2)(x) provides: Amendment of hardship distribution standards. A qualified cash or deferred arrangement that permits hardship distributions under §1.401(k)-1(d)(3) may be amended to specify or modify nondiscriminatory and objective standards for determining the existence of an immediate and heavy financial need, the amount necessary to meet the need, or other conditions relating to eligibility to receive a hardship distribution. For example, a plan will not be treated as violating section 411(d)(6) merely because it is amended to specify or modify the resources an employee must exhaust to qualify for a hardship distribution or to require employees to provide additional statements or representations to establish the existence of a hardship. A qualified cash or deferred arrangement may also be amended to eliminate hardship distributions. The provisions of this paragraph also apply to profit-sharing or stock bonus plans that permit hardship distributions, whether or not the hardship distributions are limited to those described in §1.401(k)-1(d)(3).

[Kevin C]

Yes, you can eliminate hardship distributions from an ERISA covered 403(b). The section 411(d)(6) regulations also apply under ERISA.

From the preamble to the final 411(d)(6) regulations published 8/9/2006:

Section 204(g) of ERISA contains parallel rules to section 411(d)(6) of the Code, including a similar directive to the Secretary of the Treasury to issue regulations providing that section 204(g) of ERISA does not apply to any amendment that reduces or eliminates early retirement benefits or retirement-type subsidies that create significant burdens or complexities for the plan and plan participants unless such amendment adversely affects the rights of any participant in a more than de minimis manner. Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713) and section 204(g) of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed in these regulations for purposes of ERISA, as well as the Code. Thus, these final regulations issued under section 411(d)(6) of the Code also apply for purposes of section 204(g) of ERISA.

[Guest Tom:]

Kevin; thank you for your reply.

But, I do not see how a 403(b) plan can be construed as a CODA or profit-sharing plan. The regulation specifically applies the cut-back exception to CODAs and profit-sharing plans and I cannot find any IRS guidance that expands the use of these terms 403(b) plans. Therefore, it does not appear to be prudent for an ERISA 403(b) plan to eliminate hardship distributions without first obtaining a favorable written opinion from its outside legal counsel.