Hardship Self-Certification SECURE 2.0 Poll

Just curious whether anyone knows whether large recordkeepers are moving to self-certification of hardship withdrawals as permitted by SECURE Section 312?

Is this a choice by each plan sponsor, or are the recordkeepers mandating a specific service model?

For now, we are *not* implementing self-certification (much to the chagrin of my ops colleagues).  It concerns us that the proviso of "unless knowledge to the contrary" (paraphrasing) exists, and what knowledge the plan sponsor has that may be attributed to us.  Also, if someone takes a "medical expense" hardship in March, a "tuition" hardship in April, a "foreclosure" hardship in May and an eviction hardship in June - all self-certified, can we deny or what?  Need guidance.

In our case, most of our clients "outsource" the obtain of documentation and review to us, so no skin off their noses - except for participant complaints....

MoJo, accepting the premise you describe, might a response be different if a big-enough plan sponsored by an employer with a satisfactory financial condition indemnifies its service provider against whatever loss, liability, and expense results from following the plan administrator’s written instructions detailing nondiscretionary bright-line rules to apply forms-only facts on which claims to process as system-allowed and which are system-denied?

If so, is it feasible for a recordkeeper to segment its customers between those that can transfer the risk away from the service provider, and those that can’t?

Here are article from Ascensus, Fidelity and RMS about self-certification of hardships.  All three see self-certification as optional and citing a need for further guidance.  They vary in the sense two are what I would characterize as bullish on plans using self-certification and one is bearish.

The biggest conundrum seems to be that a plan administrator who has knowledge that a participant does not need a hardship is not absolved of all responsibility if the participant abuses privilege to self-certify a hardship withdrawal.  Self-certification makes the process easier to administer and plan administrators like not having to poke into a participant's personal financial circumstances. 

Plan administrators are uneasy because they do not know the extent they will be held accountable in the event of abuse of the privilege for a participant to self-certify.  Recordkeepers understand that there is a point where abuse has to be addressed and will take steps to protect themselves by delineating between routine approvals and patterns of abuse.  The latter are dumped into the lap of the plan administrator.

r2023-08-24-secure-2-0-hardship-distributions.pdf SEC2.0 Self-Certification Hardship Emergency.pdf Self-Certification-of-Hardship-Distributions.pdf

1 hour ago, Peter Gulia said:

MoJo, accepting the premise you describe, might a response be different if a big-enough plan sponsored by an employer with a satisfactory financial condition indemnifies its service provider against whatever loss, liability, and expense results from following the plan administrator’s written instructions detailing nondiscretionary bright-line rules to apply forms-only facts on which claims to process as system-allowed and which are system-denied?

If so, is it feasible for a recordkeeper to segment its customers between those that can transfer the risk away from the service provider, and those that can’t?

While I would never say never, the answer to the first part of your questions is contained in your second part.  It isn't feasible to segregate servicing for one client from the norm of processing for all other clients.  In addition, my concern isn't as much for our liability (as we are a nondiscretionary, directed, ministerial service provider) but rather for the plan - where a misstep in institutionalizing inappropriate distributions is a plan issue, and possibly a qualification issue.

We take pride in being trusted advisors to our plan sponsor clients, and would seriously caution against them directing us to do something we think can have substantial risks to the plan.

That said, guidance, guidance, guidance.....

MoJo, thank you for sharing useful information, including a recordkeeper’s thinking about roles and responsibilities.

I hope those who want the IRS’s guidance see that it might not happen.

Each of § 401(k)(14)(C), § 403(b)(7)(D), § 403(b)(11), and § 457(d)(4) permits the Secretary of the Treasury to make regulations. But none of those commands or directs the Treasury or its IRS to do anything.

Some lawyers in the IRS might believe that deliberate uncertainty is better than an interpretation—whether a rule or nonrule guidance—the IRS might publish. And even if they don’t believe that, some might think this point of law is less important than many others the IRS is called to interpret.