Hardship withdrawal suspension period

[401kspeclst]

If our plan is not a safe harbor plan, can we impose a one year suspension for a hardship withdrawal or does it have to be 6 months? If one year is acceptable can someone direct me to the code that backs that up? Thank you!

[ratherbereading]

All our plans, safe harbor or not, require a 6 month suspension.

[ETA Consulting LLC]

The entire notion of a suspension is to 'deem a hardship exists and a distribution is necessary to satisfy the hardship'.  This is what the safe harbor does.  So, you're asking if you can operate outside of the safe harbor definitions of hardship and also apply a longer suspension.  My question would be that why would you suspend at all if your intent is to use a 'facts & circumstances, test of a hardship. 

Good Luck!

[401kspeclst]

4 minutes ago, ETA Consulting LLC said:

The entire notion of a suspension is to 'deem a hardship exists and a distribution is necessary to satisfy the hardship'.  This is what the safe harbor does.  So, you're asking if you can operate outside of the safe harbor definitions of hardship and also apply a longer suspension.  My question would be that why would you suspend at all if your intent is to use a 'facts & circumstances, test of a hardship. 

Good Luck!

My understanding is we must suspend a participant based on the following from the IRS website:

After an employee receives a hardship distribution of elective contributions from his or her 401(k) plan, generally the employee will be prohibited from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months after receipt of the hardship distribution.
(Reg. §1.401(k)-1(d)(3)(iv)(E)(2))

I am questioning the language of "at least 6 months", can it be more? Are you saying it can be less?

 

[ETA Consulting LLC]

You must read your plan document.  The IRS website will provide you general knowledge of the rules, but the written plan will provide you background on specific provisions.  There are two types of hardship determinations:  "Safe Harbor" and "Facts & Circumstances".  When working on a prototype document, you cannot even apply a 'facts & circumstances' determination to a hardship from the deferral source of funds.

This is why you must read your plan.  It is a 'safe harbor' provision that says a distribution from the plan is deemed necessary to satisfy the hardship if the employee is suspended from deferring for 6 months.  There are other requirements, but this is merely one of them.

If you're providing a hardship under the facts & circumstances, then the suspension period may not be a fact or circumstance that is relevant in your determination.  Again, this won't be an option when you're on a pre-approved document and the participant is taking a hardship from the deferral source of funds.  So, yes, under some circumstances you may receive a hardship without a suspension. 

Good Luck!

[MWeddell]

I agree with the above, but it seems a bit tangential to the original poster's question.  It is possible for no suspension at all to be required after a hardship withdrawal.

Yes, a plan document could require a 12-month suspension instead of a 6-month suspension that is now in the safe harbor portion of the hardship regulations.  This was quite common for the first couple of years after the regulation lowered the suspension period's length from 12 to 6 months.

There is no citation that supports this.  The structure of Code Section 401(a) is to list various prohibitions for qualified plans and anything else is permitted.  Given the absence of a rule that claims "elective deferrals may be suspended only under specified circumstances,," then a plan may make up its own suspension rules.

[ERISAAPPLE]

I have not researched the issue, but I would want to know if the right to make elective deferrals after the 6-month suspension is a benefit, right, or feature subject to discrimination testing.   If it is not subject to testing, or if you pass the tests, then nothing stops you from doing this.  You can design your plan however you want as long as you pass the qualified plan rules and ERISA rules (and of course all other laws).  I am not aware of any rule that would prevent this.  I agree with the commenters above though in that I am not sure why you would do this.  It is easier to limit the number of hardship withdrawals if you are concerned there are too many requests.       

[MWeddell]

It seems to me that the suspension is a benefit, right or feature.  However, it is uniformly available to all plan participants (the fact that one has to first have experienced a financial hardship is ignored for current availability purposes), so there wouldn't be any BRF testing.