Hardship Determination

I have a client that has not yet adopted the self-certification for Hardship Distributions.  I have a situation where it doesn't distinctly fall under a Hardship per the IRS Safe Harbors, but it's obvious there is a financial need.

The participant needs to move to a new rental with their parents, who are terminally ill.

So it's not the purchase of a primary residence and it's not for the medical bills, but they are moving/renting in order to get treatment and care for them.

Is this a situation where we can still approve the Hardship?

What does the plan document say, including provisions concerning the scope of the fiduciary's discretion to interpret plan provisions?

Start with a little housekeeping.  Have you confirmed that the plan document restricts the hardships to the IRS Safe Harbors.?  Keep in mind that preapproved plans had an Interim Amendment to update the plan to conform with final regulations, so look beyond the original Adoption Agreement to find what was elected in the Interim Amendment.  (If the recordkeeper adopted the Interim Amendment on behalf of all of its clients, there should still be a copy of the amendment in the plan's document files.)

Many of the Interim Amendments included some language like "for any other event that the IRS recognizes as a deemed immediate and heavy financial need Hardship
distribution event under ruling, notice or other guidance of general applicability" which may provide so wiggle room for interpretation.

Unless you are acting as the official Plan Administrator, it will be up to the Plan Administrator (who likely will value your input) to make the decision.

As others say, check the plan document first. However, if the IRS safe harbor financial need reasons have been adopted, I don't see how you can say this situation meets any of those reasons. Unfortunately, I'm guessing we've all had clients we want to help out in this area, depending on the story, but we can't rely on our own emotions to make the determination. I don't think IRS would buy it.

It shouldn't be too difficult to amend the plan to include non-"safe harbor" reasons for hardship distributions. We typically use a catch-all provision such as "Other catastrophic circumstances."