Self Cert Hardship

Hello,

i have a plan that allows self certification for hardships on line through Voya.

They have a participant that is now requesting his 3rd hardship in 6 months.

Can the plan sponsor set up administrative procedures to request supporting documentation if the participant has requested more than 2 hardships or if they feel it may not be for a hardship reason? 

Appreciate your thoughts.

Before considering whether the plan’s sponsor or administrator may make such a change, why would an employer want to?

The statute provides: “The Secretary [of the Treasury] MAY provide by regulations for exceptions to the rule of the preceding sentence [permitting a plan’s administrator to rely on the employee’s written certification] in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification[.]” I.R.C. (26 U.S.C.) § 401(k)(14)(C).

The Treasury department has not yet published (or even proposed) any such rule or regulation.

Even if one interprets the statute alone to find that an administrator does not “rely” on a certification if the administrator has actual knowledge to the contrary, merely suspecting a claimant submitted a false certification is not the same thing as having actual knowledge that the certification is false.

Further, even if a plan’s sponsor or administrator might invent its dividing line between participants allowed to self-certify and others regarding whom the administrator evaluates a claim without relying on a certification, how likely is it that Voya’s or another recordkeeper’s computers would apply such a customer-specific service instruction?

Does an employer that serves as its plan’s administrator want to increase its workload?

Consider whether it’s better for an employer not to have too much information about its employee.

Thanks Peter - the employer is questioning the validity of the request and asking if they can deny it.   I did not ask any further details.

Also, partly what prompted the question is we received an email from Empower the other day....

it states, that a participant may self certify up to 2 hardships per year.  If the participant requests 3 or more, administrative review and approval is required. 

Plans have the option to limit the number of hardships a participant may take in a plan year to 2.

Lou81, thank you for helping me learn about what Empower offers.

It seems consistent with my point that a recordkeeper likely prefers its customers to fall in with one of the service regimes and available choices the recordkeeper designed.

Conversely, a customer might need purchasing power to get a recordkeeper to apply a customer-specific service instruction that’s not one of the programmed choices.

I just learned from Empower that the recently announced service is not the § 401(k)(14)(C) self-certification, but rather the “summary” method the IRS set in February 23, 2017 guidance to the IRS’s examiners.

Under that method, calling for a fuller evaluation of a hardship claim after the first two in a year is logically consistent with that IRS guidance.

I don’t see any problem limiting the number of certification hardships or putting a limit on the number of hardships allowed per year.
 

I can understand an employer wanting to do this because of leakage. This is becoming a problem for many plans that are using certification. 

I think this falls under the "unless the employer has knowledge to the contrary" part of the statute.  We've discussed this internally (we are a recordkeeper) and have decided not to offer self-certification to our clients who use our "outsourced" services for hardship processing.  When an "apparent" abuse exists, does that constitute "knowledge" that this isn't a real hardship?  This is what we need the regulators to provide guidance on.

On 12/13/2024 at 10:24 AM, Peter Gulia said:

I just learned from Empower that the recently announced service is not the § 401(k)(14)(C) self-certification, but rather the “summary” method the IRS set in February 23, 2017 guidance to the IRS’s examiners.

Under that method, calling for a fuller evaluation of a hardship claim after the first two in a year is logically consistent with that IRS guidance.

Peter,

Empower has self certification procedures that state ... For Self-certified hardships, the participant must agree to retain all documentation substantiating the hardship. In the event a participant requests three or more hardships within a plan year, the participant must provide additional information about the third (and all subsequent) hardship requests as described in these Procedures.

Lou81, thank you for opening some thought-provoking topics. MoJo, thank you for sharing useful further information.

Do you think there’s room for a recordkeeper to design a service for hardship claims that deliberately blends concepts from the 2017 guidance and the 2022 statute? For example:

A plan’s “first-two” hardship claim form, whether paper or electronic, would state the § 401(k)(14)(C) certification.

A participant would not be required, nor permitted, to submit supporting documents for the first two hardship claims in a year.

A plan’s administrator could instruct the recordkeeper to treat such a claim as approved, subject only to a good-order review that the form was completed and signed.

A hardship claim after the year’s first two would use a differently designed claim form and go to an evaluation—whether outsourced to the recordkeeper using a sufficiently nondiscretionary method the plan’s administrator instructed, or by the plan’s administrator.

The knowledge standard in § 401(k)(14)(C) is actual knowledge. If one worries that the IRS might assert that § 401(k)(14)(C) actual knowledge includes knowledge of information that would lead a reasonable plan administrator facing the same or similar circumstances to inquire further, might multiple claims not set up such a duty of inquiry until the third claim?

One can read the IRS’s 2017 guidance as suggesting that up to two hardships in a year (including, but not only, two semesters’ tuition payments, or two needs for medical care not 100% met by health coverage) is within a range for which one need not be on alert to suspect a false certification.

MoJo and BenefitsLink neighbors, what do you think?

The recently released Fall 2024 regulatory agenda has no mention of a project on Internal Revenue Code § 401(k)(14)(C) or SECURE 2022 § 312. https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPubId=202410&showStage=active&agencyCd=1500

That’s another reason I suggest an opportunity for third-party administrators and recordkeepers—and the plan sponsors and plan administrator that follow those service providers—to form an interpretation, perhaps with some reasoned suspicion to restrain how much a participant can get with a false certification.

I'm still trying to reconcile the message that individuals need to save more for retirement and the steps being taken to ensure that every employer has some type of plan, and the increasing options for a participant to take money out of the plan.

I had an early mentor in this business who told me, "Don't try to make sense of it, just accept it for what it is and act accordingly. If you try to make sense of it, you'll drive yourself crazy!"