Hardship distribution of Safe harbor match

[Lori H]

Sponsor has been allowing hardship distribution of safe harbor match and earnings for a few years now. IRC 401(k)(12)(E) prohibits this. What is an appropriate course of action?

Also, what is the govt. reasoning behind this? Is it because an employer match is discretionary while safe harbor is required?

[BG5150]

Gotta be somewhere in EPCRS. Ineligible hardship?

[Lou S.]

Government intent? Becasue they said so?

I'm guessing at govenment intent but because they are allowing sfae-harbor contributions to "buyout" testing they seem to be treating safe harbor contributions as true retirement plan contributions much the same way they treated momey purcahse and target benefit.

As for correcting I agree with BG, check EPCRS.

Participants were probably allowed to take safe harbor monies becuase they didn't have other amounts but it might be worth cheching to see if participants did have sources that were eligible and just move money around now to put them where they would have been had the funds come out of the correct eligible sources.

[Lori H]

When the plan went Safe Harbor, the sponsor did not add a safe harbor match source to their deposit template. They just kept depositing funds into their pre-safe harbor Employer Match account. Therefore the financial institution would not have been alerted to the issue. The plan strictly only has safe harbor, employer match and deferral funds, but the financial institution only was aware of er match and deferrals.

[Brenda Wren]

Rev Proc 2013-12 may provide the answer..........ask for the money back and don't do it again. If you don't get the money back from the participant, move on.

[BG5150]

When the plan went Safe Harbor, the sponsor did not add a safe harbor match source to their deposit template. They just kept depositing funds into their pre-safe harbor Employer Match account. Therefore the financial institution would not have been alerted to the issue. The plan strictly only has safe harbor, employer match and deferral funds, but the financial institution only was aware of er match and deferrals.

Just some thoughts.

1) Get a SH match account set up now.

2) Is there any way the r/k can go back and separate regular match and SH match?

3) If not, you'll have to amend the plan to allow for SH from deferral and PS only.

4) Have any distributions been made for anyone who had regular and SH match and who was not 100% vested? If you, you forfeited too much.

5) Did anyone tell the ER they should open a new source? It should be part of your procedures, when doing the SH amendment, to let them know that it is a separate money source.

6) Is this the first year of the SH match? Why wasn't this seen during the annual reconciliation?

[Lori H]

When the plan went Safe Harbor, the sponsor did not add a safe harbor match source to their deposit template. They just kept depositing funds into their pre-safe harbor Employer Match account. Therefore the financial institution would not have been alerted to the issue. The plan strictly only has safe harbor, employer match and deferral funds, but the financial institution only was aware of er match and deferrals.

Just some thoughts.

1) Get a SH match account set up now.

2) Is there any way the r/k can go back and separate regular match and SH match?

3) If not, you'll have to amend the plan to allow for SH from deferral and PS only.

4) Have any distributions been made for anyone who had regular and SH match and who was not 100% vested? If you, you forfeited too much.

5) Did anyone tell the ER they should open a new source? It should be part of your procedures, when doing the SH amendment, to let them know that it is a separate money source.

6) Is this the first year of the SH match? Why wasn't this seen during the annual reconciliation?

1) Done

2) Yes

3) Plan was amended for SH several years ago

4) No. Plan has 100% vesting

5) Not until this week.

6) No. Good question.