Does a participant have a claim for getting what he asked for?

Consider these circumstances:  An individual-account retirement plan that includes a 401(k) arrangement allows a distribution as needed to meet a participant's hardship need.  A participant submits a claim for such a distribution.  The plan's administrator approves the claim, and instructs the plan's trustee to pay the requested distribution.  But had the administrator read the participant's claim, it would have known that the participant was not entitled to a hardship distribution.

Assuming the plan is ERISA-governed, does the participant have a viable claim against the administrator for its approval of the participant's claim.  If there is such a claim, why is it viable or not viable?  If there is a claim, what is the measure of the losses that result from the administrator's breach?

I guess a court would dismiss a participant's claim.

But perhaps I suffer from a failure of imagination.

Can anyone pull together a claim a court would recognize?

I agree that a court would (and should) most likely dismiss the participant's claim.  

30 minutes ago, RatherBeGolfing said:

I agree that a court would (and should) most likely dismiss the participant's claim.  

I agree with RBG about what a court would do.  The next question is what the DOL wold do with a PA (read "fiduciary") who approves hardships without reading them....

The participant is out of luck.  The administrator is out of their league....

1 minute ago, MoJo said:

I agree with RBG about what a court would do.  The next question is what the DOL wold do with a PA (read "fiduciary") who approves hardships without reading them....

The participant is out of luck.  The administrator is out of their league....

Absolutely.  The PA's problems do not end with the participants failure to bring an actionable claim...  We can only hope this PA is nowhere near any of our plans 

1 minute ago, RatherBeGolfing said:

Absolutely.  The PA's problems do not end with the participants failure to bring an actionable claim...  We can only hope this PA is nowhere near any of our plans 

Beware, people who do things like signing without reading often don't last long in their current positions - which means they *may* end up with one of our clients in the future!

Trying to dream up a scenario where the participant is "damaged." What about the 6-month suspension of deferrals (if applicable) where employer does a hefty match, that the participant now "loses" - I leave it to you lawyers as to whether this might legitimately be a claim that would be upheld.

Thank you, everyone, for the helpful information.

Let's follow-up on MoJo's question:  Without doubting the power of the Labor department to pursue a breach of ERISA section 404(a)(1)(D), how likely is it that the DoL would pursue enforcement action against a plan's fiduciary for granting a participant exactly what the participant asked for?

15 minutes ago, Belgarath said:

Trying to dream up a scenario where the participant is "damaged." What about the 6-month suspension of deferrals (if applicable) where employer does a hefty match, that the participant now "loses" - I leave it to you lawyers as to whether this might legitimately be a claim that would be upheld.

I don't see the participant as being damaged.  They didn't get what they weren't entitled to.

6 minutes ago, Fiduciary Guidance Counsel said:

Thank you, everyone, for the helpful information.

Let's follow-up on MoJo's question:  Without doubting the power of the Labor department to pursue a breach of ERISA section 404(a)(1)(D), how likely is it that the DoL would pursue enforcement action against a plan's fiduciary for granting a participant exactly what the participant asked for?

 

I would suggest the changes of it coming to anything are low - UNLESS the participant did something stupid and called the DOL to complain about not getting the hardship after all.  Then the PA may be in for a inquiry....

Hard to say if the DOL would even have anything to find should they do an audit of the plan.  Based on the OP's comments, it appears as though the hardship was "caught" before it was processed, so no distribution took place.  What would be the "red flag" to the DOL investigator absent a participant complaint?

11 minutes ago, MoJo said:

I would suggest the changes of it coming to anything are low - UNLESS the participant did something stupid and called the DOL to complain about not getting the hardship after all.  Then the PA may be in for a inquiry....

Hard to say if the DOL would even have anything to find should they do an audit of the plan.  Based on the OP's comments, it appears as though the hardship was "caught" before it was processed, so no distribution took place.  What would be the "red flag" to the DOL investigator absent a participant complaint?

It would probably only get caught if the participant complains or as a byproduct of an unrelated investigation.  More damning if it isn't an isolated incident which is beyond the fact pattern, but where there is smoke there is usually fire...

I think some clarification may be in order--I read this as Participant DID receive hardship even though he shouldn't have, then is coming back with a complaint to the PA for not denying it.  In any case, I can't see the Participant getting any traction with this.  PA should revise procedures though.  

RatherBeGolfing is on to something.  My hypo is designed to help some fiduciaries gather information about how much effort (beyond the recordkeeper's work) the administrator should put into reviewing hardship claims.  And in my imaginary situation, all work done to review hardship claims is paid from plan assets, and so reduces participants' benefits.

Some believe the plan's administration should use enough effort for the administrator to have a high confidence level that hardship claims are decided correctly.

Others feel that a fiduciary's duty to incur no more than reasonably necessary expenses suggests a greater tolerance for incorrect decisions.  A part of their reasoning is their observation that the recordkeeper's processing rarely results in an incorrect denial (and a denial can be remedied through the plan's claims procedure), and an incorrect approval does not harm a participant beyond what the participant asked for.

In theory, fiduciaries should care about what is loyal and prudent without regard to what the Labor department might or might not pursue.  Yet the fiduciaries feel they should consider the practicalities of the plan incurring expenses to respond to an EBSA investigation (which the fiduciaries believe would not become chargeable to any fiduciary).

So let's imagine the fiduciaries adopt a procedure for following the recordkeeper's clerical processing, with after-the-fact reviews of a small random sample that a consultant advises is just enough to detect a defect or systemic weakness in the clerical procedure.  If that's the fiduciaries' decision, is there anything for the Labor department to pursue?

Is a 3rd party claim possible? Consider the married participant.

3 hours ago, Fiduciary Guidance Counsel said:

RatherBeGolfing is on to something.  My hypo is designed to help some fiduciaries gather information about how much effort (beyond the recordkeeper's work) the administrator should put into reviewing hardship claims.  And in my imaginary situation, all work done to review hardship claims is paid from plan assets, and so reduces participants' benefits.

Some believe the plan's administration should use enough effort for the administrator to have a high confidence level that hardship claims are decided correctly.

Others feel that a fiduciary's duty to incur no more than reasonably necessary expenses suggests a greater tolerance for incorrect decisions.  A part of their reasoning is their observation that the recordkeeper's processing rarely results in an incorrect denial (and a denial can be remedied through the plan's claims procedure), and an incorrect approval does not harm a participant beyond what the participant asked for.

In theory, fiduciaries should care about what is loyal and prudent without regard to what the Labor department might or might not pursue.  Yet the fiduciaries feel they should consider the practicalities of the plan incurring expenses to respond to an EBSA investigation (which the fiduciaries believe would not become chargeable to any fiduciary).

So let's imagine the fiduciaries adopt a procedure for following the recordkeeper's clerical processing, with after-the-fact reviews of a small random sample that a consultant advises is just enough to detect a defect or systemic weakness in the clerical procedure.  If that's the fiduciaries' decision, is there anything for the Labor department to pursue?

It is a question of "what wold a "prudent expert" do in similar situations."  That, in my mind requires an analysis of the costs and benefits of having a procedure that - by definition - would create errors, but also would keep costs low.

I think the fiduciary would lose.  The "cost" of the plan sponsor/fiduciary performing their duties correctly is never a consideration in determining whether the action was appropriate.  Only costs to the plan would be an appropriate consideration.  Per the OP's original situation, the "costs" to the fiduciary of actually being a prudent "expert" was nil.  "RTFD" - in this case, "read the ... document" and make a decision (apply your best fiduciary judgment) Takes some time, but no costs.

3 hours ago, Fiduciary Guidance Counsel said:

Others feel that a fiduciary's duty to incur no more than reasonably necessary expenses suggests a greater tolerance for incorrect decisions. 

Can a fee be reasonable if there is an expectation that the work may not be accurate? 

In typical situations for most single-employer retirement plans, a plan’s administrator might be the same legal person as the plan’s sponsor, or some committee of that person.  Typically, such an administrator’s worker also is an employee of an employer that maintains the plan.  And usually one assumes the restraints of 29 C.F.R. § 2550.408c-2:  Reasonable compensation for services needed to administer a plan doesn’t include any compensation for a fiduciary who gets full-time pay from an employer that maintains the plan.  But although that situation might be a norm, it’s not the only way a plan can be administered.

MoJo, I’m thinking of a retirement plan that hires its own employees (in addition to the recordkeeper), all of whom do no work for any employer that maintains the plan.  In that situation, doing more work in reviewing claims could increase the plan’s expense and so reduce participants’ benefits.

RatherBeGolfing, your observation suggests a point that those of the fiduciaries who decide to continue or renegotiate the recordkeeper’s agreement should evaluate whether the scope and quality of those services fits that fee.  Also, some service contracts adjust the fees based on independent tests of the service provider’s work.  Improving the recordkeeper’s processing (which might in some circumstances support a fee increase) could affect how much supervision or review the fiduciaries find necessary.

Mike Preston, thank you for the idea.  Assuming the plan’s administrator did not fail to implement a qualified domestic relations order and did not fail to obtain a qualified election (supported by the spouse’s consent) if ERISA § 205 or the plan’s governing documents required it, I assume a nonparticipant’s claim would be beyond those empowered under ERISA § 502(a).

Again, thank you, all, for helping me think about this.

I wonder if another answer to my question about how much effort to put into reviewing hardship claims is:  enough so the fiduciary will have made a prudent effort against the possibility that the IRS might tax-disqualify the plan, but no more than is prudent for that purpose (if the effort would incur unnecessary expense borne by the plan).

If we're talking about a plan that is large or complex enough to have it's own staff, I cannot imagine any tolerance for lazy hardship reviews--It better be perfect every time.  In that scenario, I see the recordkeeper's job as cutting a check & that's it.  

46 minutes ago, TPAJake said:

If we're talking about a plan that is large or complex enough to have it's own staff, I cannot imagine any tolerance for lazy hardship reviews--It better be perfect every time.  In that scenario, I see the recordkeeper's job as cutting a check & that's it.  

This is a classic "it depends."  Yes, most RK's are "ministerial service providers" but many plan sponsors rightly assume that the RK is keeping an eye on things (because, gee, that's what sales promised them, and that is a service they offer).  In those cases, just cutting a check won't bode well for staying in business long.

18 minutes ago, MoJo said:

This is a classic "it depends."  Yes, most RK's are "ministerial service providers" but many plan sponsors rightly assume that the RK is keeping an eye on things (because, gee, that's what sales promised them, and that is a service they offer).  In those cases, just cutting a check won't bode well for staying in business long.

Unless the recordkeepers have agreed to assume fiduciary responsibilities, irrespective of what the sponsor may be assuming, it is outside the recordkeepers' responsibilities to make eligibility determinations and, especially, to determine whether a participant meets the hardship requirements.  So yes, recordkeepers who bounce such determinations back to the sponsor (and bouncing it back explicitly is necessary if the sponsor seems to be leaving it up to the RK) can and should stay in business, since every one of their competitors would (presumably) do the same.

If a plan's administrator and recordkeeper have negotiated a service contract that obligates the recordkeeper to process hardship claims under a procedure set by the administrator, the recordkeeper will want to perform the contracted service.

And if a recordkeeper seeks to maintain a position that it lacks discretion because it "performs purely ministerial functions . . . within a framework of policies, interpretations, rules, practices and procedures" instructed by the plan's administrator, the recordkeeper should want the administrator to do enough oversight for the administrator to find that the recordkeeper follows the instructed procedure well enough that one can say it really is the administrator's (rather than the recordkeeper's) procedure.

But I doubt an administrator must inspect 100% of the recordkeeper's processing decisions.  And for those the administrator evaluates, I doubt prudence requires the administrator to cause the recordkeeper to attain 100% accuracy.

1 minute ago, My 2 cents said:

Unless the recordkeepers have agreed to assume fiduciary responsibilities, irrespective of what the sponsor may be assuming, it is outside the recordkeepers' responsibilities to make eligibility determinations and, especially, to determine whether a participant meets the hardship requirements.  So yes, recordkeepers who bounce such determinations back to the sponsor (and bouncing it back explicitly is necessary if the sponsor seems to be leaving it up to the RK) can and should stay in business, since every one of their competitors would (presumably) do the same.

Again, I would suggest "it depends."  "Outsourcing services (without accepting fiduciary responsibility) have been all the rage for a decade or so.  We do hardship "determination" based on a hardship policy and a checklist that does not involve discretion as a contracted service.  Same for loans, distributions, rollovers in, and a bunch of other things.  If a transaction gets "bounced" because it doesn't meet the checklist doesn't mean the end of the story.  We will discuss it with the sponsor with our take on whether or not it can proceed and if so, how/why/risks/etc.  Sponsor may authorize or not - but it is part of the service we provide (without being a fiduciary).  As such, we've "advised" the client that our checklist *is* what is required (although they have the option of not taking advantage of the service, they do not have the ability to modify the checklist).

So we may be splitting hairs or playing semantics, but my experience is that RKs do provide non-fiduciary services that have the effect of ministerially (but yet consultatively) determining "eligibility" for all sorts of transactions.

8 minutes ago, MoJo said:

Again, I would suggest "it depends."  "Outsourcing services (without accepting fiduciary responsibility) have been all the rage for a decade or so.  We do hardship "determination" based on a hardship policy and a checklist that does not involve discretion as a contracted service.  Same for loans, distributions, rollovers in, and a bunch of other things.  If a transaction gets "bounced" because it doesn't meet the checklist doesn't mean the end of the story.  We will discuss it with the sponsor with our take on whether or not it can proceed and if so, how/why/risks/etc.  Sponsor may authorize or not - but it is part of the service we provide (without being a fiduciary).  As such, we've "advised" the client that our checklist *is* what is required (although they have the option of not taking advantage of the service, they do not have the ability to modify the checklist).

So we may be splitting hairs or playing semantics, but my experience is that RKs do provide non-fiduciary services that have the effect of ministerially (but yet consultatively) determining "eligibility" for all sorts of transactions.

Granted, but if the arrangement is that the sponsor sends a hardship request to the RK for processing based on a prearranged checklist, where the request does not meet the checklist requirements, (a) the RK should take note of that, (b) the RK should pass word back to the sponsor, and (c) the sponsor should give a go-ahead before the hardship request is honored.  Going back to the OP, for the deficient hardship request to get paid under such an arrangement without the request being read with sufficient care to notice that it is no good would require either (a) the RK paying the hardship request out without matching it up against the checklist, (b) the RK passing back the issues to the sponsor but paying it out without an explicit go-ahead from the sponsor, or (c) the RK passing back the issues to the sponsor and the sponsor, even with such a warning, fails to carefully review the hardship requests and instructs the RK to pay it out. 

2 minutes ago, My 2 cents said:

Granted, but if the arrangement is that the sponsor sends a hardship request to the RK for processing based on a prearranged checklist, where the request does not meet the checklist requirements, (a) the RK should take note of that, (b) the RK should pass word back to the sponsor, and (c) the sponsor should give a go-ahead before the hardship request is honored.  Going back to the OP, for the deficient hardship request to get paid under such an arrangement without the request being read with sufficient care to notice that it is no good would require either (a) the RK paying the hardship request out without matching it up against the checklist, (b) the RK passing back the issues to the sponsor but paying it out without an explicit go-ahead from the sponsor, or (c) the RK passing back the issues to the sponsor and the sponsor, even with such a warning, fails to carefully review the hardship requests and instructs the RK to pay it out. 

If either B or C happens, I would suggest the RK has a problem.  Either they are "deficient" in being consultative and educating the client, or the client is playing fast and loose with their responsibilities.  If the former, a better RK will offer services and the current RK loses.  If the latter, no matter what happens, the RK will get blamed and the client will go elsewhere (because the advisor said so...).

17 minutes ago, MoJo said:

If either B or C happens, I would suggest the RK has a problem.  Either they are "deficient" in being consultative and educating the client, or the client is playing fast and loose with their responsibilities.  If the former, a better RK will offer services and the current RK loses.  If the latter, no matter what happens, the RK will get blamed and the client will go elsewhere (because the advisor said so...).

Seems to me that being able to show that they pointed out deficiencies in the hardship request to the sponsor and the sponsor told them to pay it anyway ought to be a pretty airtight defense for the RK.  What would it matter if the sponsor still considered the RK at fault?  If a sponsor like that goes to a different recordkeeper, the RK will still be able to stay in business with its head held high, since their procedures are sound.

2 minutes ago, My 2 cents said:

Seems to me that being able to show that they pointed out deficiencies in the hardship request to the sponsor and the sponsor told them to pay it anyway ought to be a pretty airtight defense for the RK.  What would it matter if the sponsor still considered the RK at fault?  If a sponsor like that goes to a different recordkeeper, the RK will still be able to stay in business with its head held high, since their procedures are sound.

"Airtight defenses" still cost a lot of money to prove in court....

Should we consider that not all claims are submitted electronically?  Of those on paper, might a recordkeeper's employee see a few hundred claim forms in a business day?  Might such an employee, even if neither under-paid nor over-worked, sometimes have a bleary-eyed moment in which he believed a question was answered with the form's Yes box checked while the claimant's actual response was a No?

Recognizing that each incremental to catch mistakes costs something, could a prudent administrator and a businesslike recordkeeper negotiate how much process and accuracy the plan wants to pay for?

5 hours ago, Fiduciary Guidance Counsel said:

Should we consider that not all claims are submitted electronically?  Of those on paper, might a recordkeeper's employee see a few hundred claim forms in a business day?  Might such an employee, even if neither under-paid nor over-worked, sometimes have a bleary-eyed moment in which he believed a question was answered with the form's Yes box checked while the claimant's actual response was a No?

Recognizing that each incremental to catch mistakes costs something, could a prudent administrator and a businesslike recordkeeper negotiate how much process and accuracy the plan wants to pay for?

Sorry I disagree.  "Close enough" is a per se breach of a fiduciary duty.  Errors happen, but "acceptance" of a process that will tolerate x% errors is simply not acceptable.  The "process" itself should be designed to not produce errors, and when errors occur, the failure in the process needs to be addressed.  Anything less is philosophically not consistent with the concept of a "fiduciary."  I would suggest an increase in fees to better ensure error free processing would be the "prudent" thing to do.

Think about VCP or SCP filings - a pre-requisite to relief is ALWAYS to identify how the gaps have been plugged to best ensure it won't happen again.  Saying, we've fixed it so no more than 5% will be in error in the future won't cut it - and that isn't even dealing with the higher standard of being a fiduciary!

And despite my usually good work, my preceding post has a word missing.

If this had been work deliverable to a client, I might have used an assistant to double-check my work (and a client might have borne that expense).  But might some clients prefer to tolerate an imperfection?

MoJo, thank you for explaining a view that's helpful for me to think about.

2 minutes ago, Fiduciary Guidance Counsel said:

And despite my usually good work, my preceding post has a word missing.

If this had been work deliverable to a client, I might have used an assistant to double-check my work (and a client might have borne that expense).  But might some clients prefer to tolerate an imperfection?

FGC:  I think our point of disagreement is what is the "effect" of that tolerance.  Yes, some would probably "tolerate" errors to save some bucks - but the "effect" is still an "imprudent" decision, and therefore a breach.

1 minute ago, MoJo said:

Sorry I disagree.  "Close enough" is a per se breach of a fiduciary duty.  Errors happen, but "acceptance" of a process that will tolerate x% errors is simply not acceptable.  The "process" itself should be designed to not produce errors, and when errors occur, the failure in the process needs to be addressed.  Anything less if philosophically not consistent with the concept of a "fiduciary."  I would suggest an increase in fees to better ensure error free processing would be the "prudent" thing to do.

Think about VCP or SCP filings - a pre-requisite to relief is ALWAYS to identify how the gaps have been plugged to best ensure it won't happen again.  Saying, we've fixed it so no more than 5% will be in error in the future won't cut it - and that isn't even dealing with the higher standard of being a fiduciary!

FWIW, I agree 100% with MoJo.

When errors happen we fix them and change the process to make sure they don't happen again.  We don't continue with the same flawed process because it is cost effective.  I would go as far as saying that a fiduciary who contracts with a service provider knowing that the process will produce errors and that the process will not be revised to prevent those errors in order to cut down cost is in breach before the error even happens.  An agreement with that flawed service provider is certainly not in the best interest of the participants, and the fiduciary's responsibility is to find a a service provider who will perform accurate work (and fix flawed processes) at a reasonable and necessary cost.

I'm +1 with MoJo & RBG

I get the idea that a fiduciary shouldn’t leave unimproved a known flaw in the procedure that allows errors because of the procedure’s provisions.  And I get the idea that we should not deliberately fail to correct a detected error (if there remains an opportunity to do so).

But at least for work done by humans, the only method I know that might reduce errors to zero is reinspection of each worker’s work.  And what if a reinspector makes a mistake?

Some might interpret ERISA § 404(a)(1) as stating several commands, some of which might sometimes bear some internal tension.  And such an interpretation might lead to harmonizing those commands following a retirement plan’s purpose.

Section 404(a)(1)(B) refers to “the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims[.]”

Yet one might read § 404(a)(1)(D)’s command to administer a plan “in accordance with the documents and instruments governing the plan” as calling for perfect fidelity to a plan’s provisions.

But could such a reading conflict, at least at the margin, with § 404(a)(1)(A)’s command that a fiduciary discharge its duties “for the exclusive purpose of providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan”?

If participants’ accounts bear the expenses, is it always “solely in the interest of the participants and beneficiaries” to reduce to zero the probability of mistaken claims decisions (especially if an unreviewed mistake grants a participant what he or she asked for)?

Perhaps in the fall semester I’ll invite my ERISA Fiduciary Responsibility law students to research and write about these questions.

Thank you for a thoughtful discussion.

3 hours ago, Fiduciary Guidance Counsel said:

 

But at least for work done by humans, the only method I know that might reduce errors to zero is reinspection of each worker’s work.  And what if a reinspector makes a mistake?

 

....

 

Section 404(a)(1)(B) refers to “the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims[.]”

 

....

 

 

If participants’ accounts bear the expenses, is it always “solely in the interest of the participants and beneficiaries” to reduce to zero the probability of mistaken claims decisions (especially if an unreviewed mistake grants a participant what he or she asked for)?

 

Perhaps in the fall semester I’ll invite my ERISA Fiduciary Responsibility law students to research and write about these questions.

 

Thank you for a thoughtful discussion.

 

I think you answer your own question when you cite Section 401(a)(1)(B) - in that the question is one of "prudence" as one familiar with such matters would interpret it to be.  There is a difference between "human error" and "sloppy work" that produces errors.  Mistakes happen.  Figure out why and correct accordingly.  If it's "systemic" fix the system.  If it's human error, then either train the "humans" producing the error(s) or do exactly what you say and implement a QC process (which might involve double checking).  For our "document work, we do just that (100% peer review).  For "outsourced" hardships, there are QC processes in place.

I would interpret the "prudence" requirement to be the (highest) standards of professionalism in the industry.  When it comes to the nuts and bolts services we provide, 100% error free is the goal, and any error triggers a review of root cause.  Systemic errors (including process deficiencies) are changed - and a cost/benefit analysis is not done to determine if we make the change or not.  We make the change.  Human errors are also dealt with.  Some teams have policies that "write you up" if peer review produces errors over a certain threshold and too many write ups can (and does) result in termination (with a lot of coaching between initial error and termination).

Regardless of how little we charge a client, I can with almost certainty say that none of them would accept errors for a discounted price.

I have not read all of the posts on this topic word for word, but isn't the distribution an operational 401(a) violation that can be self-corrected by requesting that the employee repay the amount distributed? If that is the case, then any damage to the participant can be avoided by his/her repaying the amount to the plan.

Luke Bailey, thank you for that helpful observation.  In setting up my originating question, I didn’t pause to consider that idea.  A plan’s administrator might respond to a participant’s complaint by inviting her to return the money she says she wasn’t entitled to.

What about the participant that is unable to return the money to the plan?

If a participant sues the plan’s administrator for its fiduciary breach in approving a hardship claim it ought to have denied, the administrator might use the plan’s readiness to accept a repayment and the participant’s failure to repay to support several arguments, including:

The participant lacks standing to pursue the plan’s loss.

Because the participant had the use of the money, the participant’s plan account didn’t suffer a loss.

The payment of the unentitled distribution was a nonexempt prohibited transaction [see also ERISA § 408(c)(1)], equitable relief [ERISA § 502(a)(3)] can be had from any person, and restoration or disgorgement should be had from the party-in-interest who received the proceeds of the prohibited transaction.

Ordering the breaching fiduciary to restore the incorrectly paid amount to the participant’s plan account (without relief from the distributee) would afford a windfall to the participant, and the court instead should order equitable relief to avoid such an unconscientious result.

Isn't there another ongoing thread, concerning someone who took a hardship withdrawal to buy a house but the sale fell through, coming to the conclusion that it cannot be returned, end of discussion.  So in this instance, where no sufficient reason was given for a hardship withdrawal but it was granted anyway, how could allowing the proceeds to be returned to the plan be an acceptable course of action?

23 minutes ago, My 2 cents said:

Isn't there another ongoing thread, concerning someone who took a hardship withdrawal to buy a house but the sale fell through, coming to the conclusion that it cannot be returned, end of discussion.  So in this instance, where no sufficient reason was given for a hardship withdrawal but it was granted anyway, how could allowing the proceeds to be returned to the plan be an acceptable course of action?

The difference between the other scenario and this one is that in the house sale falling through issue the hardship was properly granted - as a hardship condition existed at the time of the distribution.  In the case in this thread, the hardship distribution was not properly granted, as no hardship existed, making it an least an operational error that needs to be corrected.

19 minutes ago, My 2 cents said:

Isn't there another ongoing thread, concerning someone who took a hardship withdrawal to buy a house but the sale fell through, coming to the conclusion that it cannot be returned, end of discussion.  So in this instance, where no sufficient reason was given for a hardship withdrawal but it was granted anyway, how could allowing the proceeds to be returned to the plan be an acceptable course of action?

In the first example, the distribution was correct because at the time, there was a legitimate hardship.  The fact that the purchase fell through doesn't matter, and you can't return a hardship that was correctly distributed.  There is no error to correct and you can't just return a legitimate hardship because you no longer need the money.

In the second example (this thread) the hardship was approved in error, and the participant was never actually entitled to the distribution.  What Luke and Peter has pointed out is that the distribution would be an operational defect that can be corrected by reversing the error, or in other words, returning the money.