457b Unforseeable Emergency requirements

If, rather than relying on a claimant’s self-certification, a governmental § 457(b) plan’s administrator or its service provider evaluates a participant’s claim for an unforeseeable-emergency distribution:

Start with RTFD, Read The Fabulous Document. Some plans state provisions more restrictive than those needed to make the plan an eligible plan under § 457(b).

If the plan’s provisions are the least needed to make a plan § 457(b)-eligible:

Some interpret 26 C.F.R. § 1.457-6(c)(2)(ii) as not mandating another way to meet an emergency need if that other way “would [] itself cause severe financial hardship[.]” For example:

Some might interpret that a participant loan—especially if it calls for payroll-deduction repayment—could in some circumstances worsen the participant’s cash-flow crunch. That interpretation might be logically consistent with the rule’s presumption that a participant ought to cease deferrals (to stop that drain on her cash wages she could use to meet her living expenses).

A distribution from a rolled-in amount might worsen the participant’s hardship if the rolled-in amount came from a plan other than another § 457(b) plan and the participant meets no exception from the extra 10% tax on a too-early distribution.

If the plan allows the claimant a distribution because she is severed from employment or because she reached age 59½ (or some later age), there is no need for an unforeseeable-emergency distribution.

Many governmental § 457(b) plans delegate decisions, at least first-stage decisions, on unforeseeable-emergency claims to a service provider. Service providers’ frameworks and methods vary considerably.

Thank you very much! Our document just cites the regulations so that is why I was unclear.