Hardship Withdrawal from Match Source Only

[kevind2010]

Can someone confirm if this is true? A 401(k) plan that also has company match allows hardship withdrawals from any money type provided that the participant is 100% vested. At my previous employer, we operated such that if the hardship amount was withdrawn entirely from the employer money source, then the 6 month deferral suspension does not need to be enforced and the participant is allowed to continue deferring.

I tried researching this and can't seem to find any guidance which has me second guessing the process at my old company. Any insight is greatly appreciated!

[Bird]

I think you're right to second guess. I think that the criteria (safe harbor) controls the suspension, and the source doesn't matter.

[MoJo]

I think you're right to second guess. I think that the criteria (safe harbor) controls the suspension, and the source doesn't matter.

I think the plan controls - and if the "safe harbor" criteria with the suspension language is applicable to all money sources, then the suspension would apply - *BUT* one does not need to do so for other than deferral sourced money. I've seen (and drafted) plans that provide different in-service distribution criteria for different money sources, including "hardship-like" withdrawals from non-deferral sources that aren't necessarily compliant with the "safe harbor" provisions (provided theya re nonetheless compliant with other in-service distribution rules).

[masteff]

I'm w/ Mojo.

It's partially definitional... If you look at the regs in 1.401(k)-1, you find that a hardship cannot be more than the maximum distributable amount; the maximum distributable amount "is equal to the employee's total elective contributions as of the date of distribution, reduced by the amount of previous distributions of elective contributions". Since match is not an elective contribution, it is not part of the maximum distributable amount and therefore not an IRS hardship distribution. BUT, the plan language can matter. You get two different results between "suspended for any hardship withdrawal" and "suspended for hardship withdrawal of elective deferrals prior to attainment of age 59 1/2".

We had this same feature in one of the plans I used to administer (I'm from the plan sponsor side). We referred to them informally as a "plan hardship" and an "IRS hardship". If you took a plan hardship (ie no deferrals), you weren't suspended. If you took deferrals, then you were. I do recall that the part of the text that explained suspensions did specify that it was the distribution of deferrals that triggered and not simply the hardship.

[Bird]

I change my answer; it is or certainly appears to be a document issue (and I was in fact looking at my document and not the regs). I can't say I follow the logic about how the definition of the maximum amount addresses this, but it has become clearer to me that the restrictions are in fact on 401(k) arrangements, and not on matching or profit sharing monies, unless the document says so. In fact the EOB has a line that states that (but that product has become so unwieldy that I can't begin to quote it*). I think the term "hardship-like" is appropriate.

*OK, I figured out how to change it to text that can be selected (but it's still no fun to use!):

3.d.2) Other types of matching and nonelective contributions are not required to be so restricted. Matching contributions (other than QMACs or safe harbor 401(k) matching contributions) and nonelective contributions (other than QNECs or safe harbor 401(k) nonelective contributions) may be subject to the normal distribution rules which apply to profit sharing plans and stock bonus plans, as described in 2. above. For example, the employer's profit sharing contributions could be available for distribution after 5 years of participation in the plan, or attainment of a specified age that is younger than age 59½, even though the elective deferrals could not be distributable at such time.

Also, these types of contributions could be subject to a hardship distribution option that would not have to satisfy the restrictions enumerated in 4. below

with respect to those funds that are subject to the IRC §401(k)(2) distribution restrictions.

"4. below" are the 401(k) hardship rules. Geez, I probably just violated some copyright...