Hardship distribution used for non-hardship reasons

[jmartin]

Participant took a hardship. Presented a bill for college tuition for $2,500 for their child. The participant mistakenly received their entire account balance instead of $2,500. Needless to say they received more money than what they provided documentation for.

The participant used all of the money they received for reasons other than the hardship. In other words the participant's child never went to college.

If a participant takes a hardship but uses the money for "other" reasons, what are the ramifications if the participant cannot return the money? Would the employer be responsible for reimbursing the plan for the total distribution or just the amount in excess of the hardship request?

[ETA Consulting LLC]

Two different standards. I think it was back in 1998 when the law was passed precluding hardships from being rolled over. I say that to say this: once you've met the standards of a hardship existing and a distribution from the plan being necessary in order to satisfy the hardship, then 'what the participant actually does with the money is irrelevant'. There is no "ends will justisfy the means". As always, you'd want to ensure you have the appropriate documentation in place for the distribution that was actually made; which should leave the amounts in excess of the $2,500 as your only issue to deal with.

Good Luck!