Hardship Withdrawal Request - What if there isn't enough to fund need

[Guest EMozley]

In the approval process of a hardship withdrawal under the safe-harbor provisions, can a plan sponsor deny the hardship if the amount available does not satisfy or meet the financial need? For example, college tuition is $7,000 and amount available is only $1,500. The participant has already proven that there is no other source of funding, so do you still approve the $1,500 although it is not enough? The regulations are clear that the amount cannot exceed the need, but does the amount have to meet the need?

[Alf]

I have never heard of any requirement that the amount requested be enough to satisfy the hardship. I don't think that's an appropriate requirement.

[Moe Howard]

I think this is a good question. The plan's fiduciary is lord & master over determining if he feels that the hardship request is legitimate. He can reject a hardship request if he feels that the funds won't be used to finance the proclaimed hardship or if he feels that the hardship does not really exist. If the participant is unable to give the fiduciary a reasonable answer as to how he expects to meet a $7000 hardship obligation with only $1500 .... then that is probably justification for the participant to get nothing (in the eyes of the fiduciary).

Hardship distributions are not given out simply by requesting them. The participant can be grilled and question about the need.... a lot of discussion is usually involved.