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Grandfathered 401(k) Hardship Withdrawals


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I believe that a governmental grandfathered 401(k) plan is subject to the same safe harbor hardship withdrawal rules as non-governmental plans. I have someone who is insisting that a governmental plan is not subject to the deferral earnings rule. I looked at the regulations and didn't see an exception.

If these plans can permit deferral earnings accrued generally after 1988 to be withdrawn on account of hardship can you please give me a cite.

Thank you.

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I cannot provide you an immediate cite, but researched this issue over 15 years ago. I'll give you what I came up with at that time.

Prior to 1989, the hardship withdrawal amounts from 401(k) accounts included gains on the deferrals. When the rule changed to allow 'deferrals only' for years 1989 and beyond, there was some question about you exact issue. Many software developers (back at that time TrustMark was the industry leader IMHO) believed that the final rules would reflect that only the "Frozen 1988" amount (unadjusted for gains) would be available. When the final rules were issued, it did allow for accrued earnings on those pre-89 deferrals, but there were no software programs recordkeeping it that way. In order to have properly recordkeep this provision, you would've needed to create an entirely new source for 401(k) deferrals. Back at that time, TrustMark only had a field to track "Frozen 88".

But, based on my research at that time, the rules did allow for the continued earnings to be allocated on the pre-89 deferrals when calculating the amount available for hardship.

Good Luck!


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Thank you ETA.

I just want to confirm that only the post-88 deferral contributions can be withdrawn without the earnings; pre-89 deferrals and earnings thereon can be withdrawn if the plan allows (i.e., same rules as corporate k plans).

Someone is trying to tell me that a governmental k plan can permit deferrals and earnings thereon to be withdrawn no matter when the deferrals were contributed.


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