Funeral expenses for hardship distribution

[austin3515]

(5) Payments for burial or funeral expenses for the employee's deceased parent, spouse, children or dependents (as defined in section 152, and, for taxable years beginning on or after January 1, 2005, without regard to section 152(d)(1)(B)); or

Participant's father passed away.  Participant lives in California, and father lives in Delaware.  Participant is coordinating the "particulars" of the funeral.  Would his air fare/hotel expenses count as funeral expenses?

What about his sister who is also coming to the funeral, who might be helping out while she is there?

[BG5150]

Sadly, I would say no, as those are not direct funeral expenses.

If airfare/hotel is included, what about the repast?

[CuseFan]

i would agree - these expenses are related to the event (the funeral) but not directly associated therewith.

[Larry Starr]

Stronger statement: absolutely NOT part of a hardship value.  He has to be buried; they could stay home (not suggesting that, just explaining the law).

[austin3515]

We leave no stone unturned when it comes to our participants 

[Peter Gulia]

Under some States' laws, a funeral expense might ordinarily include a moderate amount for mourning, including food for mourners.

If a participant's claim for what the participant describes as burial or funeral expenses seems excessive, the plan's administrator might consider what expenses a State's law would disallow in that category if a lower-priority creditor, to protect its right to a distribution from the decedent's estate, challenges a personal representative's accounting.

 

[K2]

I'd be curious, Larry, why you say it is absolutely not allowed.  I didn't see anything in the code or regs that addressed it.  

[Tom Poje]

if airfare is covered, then this means that SavingsPlus is in deep deep trouble. but then that covers a big chunk of California so that hardly covers anyone....

they list air travel, hotel under funeral expenses for hardships. oh wait. maybe they mean booking and air and hotel for the body to be shipped to its final destination. silly me.

https://www.savingsplusnow.com/tcm/savingsplusnow/static/401k_Hardship_Withdrawal_Booklet.pdf

Savings Plus is the 401(k) or 457(b) plan available to most State of California employees, including employees of the Legislature, Judicial, and California State University (CSU) system. 

 

[BG5150]

If I have a doctor's appointment in Arizona and I live in North Carolina, can I get a hardship for the plane ride?

(I hear some good things about the physicians in the south of France....)

[austin3515]

So Tom, you are saying you think it would be in then?  I suppose that is California's interpretation but they've got nothing on you for Pension Expertise!  It seems to me the reference to hotels would be exclusive of the deceased??  I can;t tell which side you are falling on.

So to clarify, you think my participant might have a legitimate expense here??

 

[Tom Poje]

well, I have nothing else to go on, but based on their form, it looks like they treat it as a legitimate hardship. at least they give description of items, rather than simply 'funeral expenses', because ultimately that is why this is the topic here. it's the best I could come up with searching the internet. and since they indicate they cover Legislative and Judicial I figured  they know more than I do. I found no site that said, burial expenses only. if you want to go to the funeral, too bad. (which of course would be the ultimate hardship)

of course, it is suppose to only be for the necessary expense, so if you put up at the Ritz or wherever for 3 weeks that might be pushing it.

[austin3515]

Looking forward to Larry Starr's rebuttal 

[Peter Gulia]

That “NRW-0975CA.5” is in the form’s footer suggests that someone for Nationwide Retirement Solutions reviewed (perhaps in “11/2015”) the form.  But we don’t know whether the review considered tax-law issues.  And if it did, we don’t know whether the reviewer relied on Nationwide’s lawyers or the plan’s lawyers.

 

[TPApril]

First time dealing with a hardship for funeral expenses.

Question - child of deceased is asking for the distribution prior to the funeral with an estimated cost of $10,000.  I'm thinking they need to provide documentation of estimated costs by funeral home and bring that in. They want a cushion. What do other people do?

[Bill Presson]

3 hours ago, TPApril said:

First time dealing with a hardship for funeral expenses.

Question - child of deceased is asking for the distribution prior to the funeral with an estimated cost of $10,000.  I'm thinking they need to provide documentation of estimated costs by funeral home and bring that in. They want a cushion. What do other people do?

Funeral homes will provide very detailed expenses and want the money up front. I guess the "cushion" could be the increase for expected taxes.

[BG5150]

I didn't think documentation was needed up front any more.  Just must be able to produce it under audit.

[Peter Gulia]

After February 2017, some plans use for hardship-distribution claims a procedure in which a claimant does not submit source documents that show the safe-harbor hardship expense, but is informed of a distributee’s obligation “to preserve source documents and to make them available at any time, upon request, to the employer or administrator.”

If a plan uses that procedure, the IRS instructs its examiner not to ask for source documents unless:

some employees received three hardship distributions in a plan year;

there is no adequate explanation for the multiple distributions; and

the examiner’s manager approves the request for source documents.

A plan might limit the number of hardship distributions in a year in ways designed to make it unlikely the plan’s administrator ever would get a request to obtain participants’ source documents.  For example, a plan might limit a participant to two hardship distributions in a year.

[BG5150]

Right.  So, in this case, they don't need a bill, at this moment, from the funeral home.

[Peter Gulia]

Whether a claimant must or need not submit source documents to substantiate her hardship expense is governed by the particular claims procedures and other documents governing the particular plan.

[TPApril]

So I'm thinking a best practice on behalf of the plan nonetheless might be to ask for the detailed expense from the funeral home and then add on 20% for the mandatory withholding.  The Plan would need to be consistent with such requests for other hardship withdrawals.