Hardship Suspension Period

[ERISA25]

EGTRRA and Notice 2001-56 seem to suggest that the suspension period for taking a hardship is exactly 6 months, but the regs under 401(k) say the period is at least 6 months.

Under Treas. Reg. 1.401(k)-3©(6)(v)(B), a plan may limit the amount of elective contributions on account of a hardship distribution for 6 months in accordance with §1.401(k)-1(d)(3)(iv)(E).

§1.401(k)-1(d)(3)(iv)(E) says for at least 6 months after receipt of the hardship distribution

Can a plan impose a suspension period that is greater than 6 months? Any guidance you can cite?

[ETA Consulting LLC]

Can a plan impose a suspension period that is greater than 6 months? Any guidance you can cite?

Sure, a plan can do whatever it wants as long as the provisions are written within the plan. There's nothing precluding a plan from saying 'anyone whose last name begins with X shall not be able to defer in the months of January and February'; as ridiculous as that sounds. The caveat is that it must continue to pass the appropriate non-discrimination tests; and many practioners often disagree on whether or not certain provisions need to be tested (or which tests apply). The question here, and always, is why would you do that? There would, generally, be logic or reasoning behind anything a plan does. What would be the benefit of extending the suspension period beyond 6 months. You may, if the plan is written that way, but why?

Good Luck!

[ERISA25]

Your post reminds me that I left out an important fact: this is a safe harbor plan.

Can a plan impose a suspension period that is greater than 6 months? Any guidance you can cite?

Sure, a plan can do whatever it wants as long as the provisions are written within the plan. There's nothing precluding a plan from saying 'anyone whose last name begins with X shall not be able to defer in the months of January and February'; as ridiculous as that sounds. The caveat is that it must continue to pass the appropriate non-discrimination tests; and many practioners often disagree on whether or not certain provisions need to be tested (or which tests apply). The question here, and always, is why would you do that? There would, generally, be logic or reasoning behind anything a plan does. What would be the benefit of extending the suspension period beyond 6 months. You may, if the plan is written that way, but why?

Good Luck!

[ETA Consulting LLC]

Your post reminds me that I left out an important fact: this is a safe harbor plan.

I just love it when fact patterns change

"Deleted Comment"

Good Luck!

[BG5150]

A safe harbor plan that has matching contributions MUST cut the suspension to 6 months.

The December 29, 2004, regulations continue this rule. See Treas. Reg. §1.401(k)-3©(6)(v)(B),

which cross-references Treas. Reg. §1.401(k)-1(d)(3)(iv)(E). Thus, the safe harbor matching

provisions are not satisfied if the suspension period is longer than 6 months, at least with

respect to hardship distributions made on or after January 1, 2002.

From 2012 ERISA Outline Book, p. 6.209 (emphasis mine)

Other plans may have longer suspension periods (such as one year).

[ETA Consulting LLC]

A safe harbor plan that has matching contributions MUST cut the suspension to 6 months.

The December 29, 2004, regulations continue this rule. See Treas. Reg. §1.401(k)-3©(6)(v)(B),

which cross-references Treas. Reg. §1.401(k)-1(d)(3)(iv)(E). Thus, the safe harbor matching

provisions are not satisfied if the suspension period is longer than 6 months, at least with

respect to hardship distributions made on or after January 1, 2002.

From 2012 ERISA Outline Book, p. 6.209 (emphasis mine)

Other plans may have longer suspension periods (such as one year).

I stand corrected. Thanks for this. I used to know it, but forgot