Hardship Distribution - Primary Residence

[FishOn]

I have a plan participant that is requesting a hardship distribution under the down payment for purchase of primary residence.  When evidence was requested, it turns out that it is for down payment and rent for a home that the participant will be leasing.  If I am not mistaken, in order to qualify for a hardship distribution, the amount requested must be necessary to cover costs directly related to the purchase itself and not a deposit and first month rent.  Is there any wiggle room for leasing other than for reason of eviction?

[C. B. Zeller]

SECURE 2.0 allows the plan administrator to rely upon the participant's self-certification that the hardship is one of the types specified in the regulations. Why are you requesting evidence?

[Paul I]

SECURE 2.0 section 312 says the plan administrator may rely on an employee's self-certification.  We have several plans where the plan administrator continues to review and approve all hardships, and does not rely on employee self-certification. 

We have one plan that does not permit any hardship withdrawals.

Some plan administrators have been very conservative and enforce a strict interpretation of each of the safe harbor reasons.  An administrator in this camp likely would not approve a hardship for housing that did not involve a purchase of a principal residence.

Others have been more lenient, basing their approval or disapproval by focusing on the immediate and heavy financial need that cannot be met from other financial resources available to the participant.  An administrator in this camp likely would approve a hardship where an employee who lacked other financial resources was required to put down a deposit and pay one month's rent up front to be able to rent a principal residence (a fairly common requirement among landlords).

Anecdotally, plans that allow self-certification are experiencing an increase in hardship withdrawals.  It would be interesting to hear of others experience.

 

[justanotheradmin]

6 minutes ago, Paul I said:

Anecdotally, plans that allow self-certification are experiencing an increase in hardship withdrawals.  It would be interesting to hear of others experience.

 

I have not yet noticed an increase. But if others are seeing it, I wonder if it is because employees feel more comfortable knowing that their personal situation isn't going to have to be disclosed to their employer. I'm sure there will be some who request them just because they know they can get away with it. I'd be curious to see the various reasons for an increase.