Taking a loan before a hardship pre-2019 rules

[30Rock]

Under current safe harbor hardship rules prior to 2019, there is the requirement that a participant take a loan if available under the plan before a hardship distribution can be approved. However, I believe there is a stipulation that if the loan will create an additional hardship the plan can waive the loan requirement. Does anyone have any details on this? How would a recordkeeper apply this exception other than relying on employee certification?

 

Thanks!

[Tom Poje]

1.401(k)-1(d)(3)(iv)(D) Employee need not take counterproductive actions. For purposes of this paragraph (d)(3)(iv), a need cannot reasonably be relieved by one of the actions described in paragraph (d)(3)(iv)© of this section if the effect would be to increase the amount of the need. For example, the need for funds to purchase a principal residence cannot reasonably be relieved by a plan loan if the loan would disqualify the employee from obtaining other necessary financing.

 

Arguably, if the plan does not expect he loan to be paid back it could be denied. and with less than 2 1/2 months to go (especially with a period of time to even process a new loan), and assuming a plan will be amended for the new rules, it might become a wink wink nudge nudge loan is 'denied'.

of course I can hear a participant coming back and saying "If I had known there was a 10% early withdrawal penalty I would have taken the loan instead and you had no right to deny the loan..."

[30Rock]

Thanks Tom!