Hardship and suspension of deferrals

[BW]

Plan sponsor offers hardship withdrawals but the plan document only requires a 6 month suspension for one of the participating employers. The client believes that they are not required to suspend deferrals at all for the other participating employers after a hardship distribution.

While the IRS uses the word generally in its description of suspensions I believe the context is that it could be longer or may not apply if deferrals are not withdrawn. Otherwise I'm unaware of any ability to bypass this minimum 6 month suspension requirement.

If they are not using a safe harbor definition for hardship is there some exemption?

[Belgarath]

13 hours ago, BW said:

If they are not using a safe harbor definition for hardship is there some exemption?

Yes. 6 month suspension isn't required for non-safe harbor definition of hardship.

[BG5150]

Can't be more than a year, though, right?

[BW]

Can you cite or explain the rationale? I've read the regulation under 1.401(k)-1. As I read the subsection for hardships section iii defines the acceptable definitions section iv  lists the qualifications which includes the suspension.

[Belgarath]

1.401(k)-1(d)(3)(iv)(E) is where the distribution is "deemed" necessary to satisfy the immediate and heavy financial need. And one of those conditions is the 6-month suspension. However, if you use the facts and circumstances test under 1.401(k)-1(d)(3)(iv)(B), the "non-safe harbor" determination, then the 6-month suspension requirement doesn't apply.

If you are using a pre-approved document, check the language. Many of them have the different language - i.e. suspension for 6 months if you are using the "safe harbor" definition, no 6-month suspension if using the facts and circumstances determination. About 95% of our plans use the safe harbor, but some don't - and it is generally a royal PIA.