Home Repair

[Guest Donell]

I have a participant who has requested a 401k hardship distribution for repairs to their home. He has a hand-written statement that he has no insurance. He has verbally stated that the damage was due to a tornado in Stone Mountain, GA. He has provided an invoice from a contrator for repairs (window purchase, sheetrock, paint, masonry, dryer fans for water removal, carpet, & labor) but it doesn't state that it was for storm damage. What type of documentation do we need to require from him in order to process his request? This is a safe harbor plan and loans are not permitted.

[QDROphile]

Check the plan document. If it is drafted with the safe harbor hardship list, you will not find that home repair is eligible. I am unaware of any authority that interprets acquistion or preventing eviction to include repair.

[frizzyguy]

http://www.irs.gov/retirement/participant/...=211439,00.html

Under a “safe harbor” in IRS regulations, an employee is automatically considered to have an immediate and heavy financial need if the distribution is for:

*Medical care expenses for the employee, the employee’s spouse, dependents or beneficiary;

*Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments);

*Tuition, related educational fees and room and board expenses for the next 12 months of postsecondary education for the employee or the employee’s spouse, children, dependents or beneficiary;

*Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;

*Funeral expenses for the employee, the employee’s spouse, children, dependents, or beneficiary; or

*Certain expenses to repair damage to the employee’s principal residence.

I think that the last point deals with this situation.

I think the amount of documentation necessary is up to the sponsor. Express to them what the rules and ask them what they want to require. If you start to dictate what is necessary, you start to put yourself at risk. Remember, you're not the sponsor, they are.

[QDROphile]

I apologize for forgetting the most recent addition to the list (it has been there a while and I have not). Adequacy of documentation is up to the plan administrator, not the sponsor unless the sponsor is the plan administrator. While a service provider contract probalby does not cover advising about fiduciary matters, the sponsor (who is probably the incorrect contracting party rather than the plan administrator) looks to the provider for advice on such technical matters and the provider either does not think about the appropriate roles and discipline or feels compelled to answer to avoid client disappointment. For me, the participant's story, including no insurance, should be stated in writing for the plan records, The tornado should be verified to see if it fits in time and place. Connect the repairs and the participant to the residence.