Are in-service distribution and hardship withdrawals protected benefits?

[Jakyasar]

As I am not a DC person, I need to ask the following question.

Need to update a DC document for a one lifer 401k plan from another vendor for a new takeover client. I never include in-service and hardship and would like to remove the options.

The owner-participant never utilized them.

Are they protected benefits i.e. cannot be removed?

Thanks

[Peter Gulia]

A Treasury rule includes this:

Amendment of hardship distribution standards.  A qualified cash or deferred arrangement that permits hardship distributions under § 1.401(k)-1(d)(3) may be amended to specify or modify nondiscriminatory and objective standards for determining the existence of an immediate and heavy financial need, the amount necessary to meet the need, or other conditions relating to eligibility to receive a hardship distribution. For example, a plan will not be treated as violating section 411(d)(6) merely because it is amended to specify or modify the resources an employee must exhaust to qualify for a hardship distribution or to require employees to provide additional statements or representations to establish the existence of a hardship. A qualified cash or deferred arrangement may also be amended to eliminate hardship distributions. The provisions of this paragraph also apply to profit-sharing or stock bonus plans that permit hardship distributions, whether or not the hardship distributions are limited to those described in § 1.401(k)-1(d)(3).

26 C.F.R. § 1.411(d)-4 https://www.ecfr.gov/current/title-26/section-1.411(d)-4.

BenefitsLink mavens, does this suggest a plan amendment must not wholly remove a right to a hardship distribution for an amount accrued before the amendment?

[BG5150]

I was always taught that hardships, like loans, were not protected benefits and can be removed prospectively.  I don't remember any conditions about accrued amounts.

[Peter Gulia]

ERISA Outline Book 2025 § 6.III.D.2.b [page 6.123] (Am. Ret. Ass’n © 2025) states:

“A profit sharing plan or stock bonus plan, including a section 401(k) arrangement under such [a] plan, may be amended to eliminate a hardship distribution option . . . , without having to protect the pre-amendment option with respect to accrued benefits.”

The authority the EOB cites for that statement is the text I quoted above.

I’ll leave it to others to discern whether the Treasury’s rule supports the EOB’s conclusion.

The Treasury’s explanation of the rulemaking is: Limitations on Availability of Benefits [final rule], 53 Federal Register 26050 (July 11, 1988), https://www.govinfo.gov/content/pkg/FR-1988-07-11/pdf/FR-1988-07-11.pdf.

This is not advice to anyone.

[Jakyasar]

How about in-service? Can it be removed from plan provisions?

[Peter Gulia]

If the plan has only one participant who would have a before-amendment accrued benefit, how much does it matter that the plan sponsor might prefer to disable that participant from getting a hardship distribution or other in-service distribution from the before-amendment accrual?

Is it about a protection from the participant’s potential creditors?

Is it about efficiency in a service provider’s work?