Further, the act expanded the types of contributions and earnings a plan may make available for
hardship distributions. And it directed the IRS and Treasury Department to eliminate the safe harbor requirement barring participants from contributing to their plan for six months while the validity of their request was judged--i.e., was the distribution needed to satisfy an immediate and heavy financial need?
plan sponsors using the IRS safe harbor list of expenses for which they can grant
hardship distributions may want to pay extra attention to the agency’s mid-November notice of proposed rulemaking.
In addition, elective deferrals were the only contributions eligible for
hardship distributions. Earnings on those deferrals and most qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs), were excluded.
The law also modifies the rules for
hardship distributions, directing the IRS to eliminate for plan years beginning after Dec.
The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and
hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape.
Hardship distributions from an EBP are intended to be a last resort for participants.
Failure to handle financial
hardship distributions properly, including cessation of deferrals for the balance of the plan year as required;
The Profit Sharing 401k Council of America surveyed plans at 931 companies with 8.6 million participants and found that nearly 100% of
hardship distributions were tied to situations to save a home.
Hardship distributions are permitted to the extent the deemed hardship requirements described in Treasury regulation section 1.401(k)-1(d)(3)(iii)(B) and (iv)(E) are satisfied.
Examples of such discretionary determinations are authorizing plan-to-plan transfers, processing distributions, satisfying applicable qualified joint and survivor annuity requirements, and making determinations regarding
hardship distributions, qualified domestic relations orders (QDROs), and eligibility for or enforcement of loans.
Higher employee contributions are the draw of 401(k)s, as are the plans' flexibility Employee contributions rose to $15,500, or $20,500 for workers 50 and older, in 2007 and plans allow for delayed vesting, eligibility requirements,
hardship distributions and employer contributions based on profit sharing or other formulas.
Such capabilities make the plan attractive for younger executive participants and help overcome stricter 409A limitations on
hardship distributions.
