A participant in a salary deferral-only plan has inception-to-date deferrals of $25,000, an investment loss of $5,000, and therefore a balance of $20,000 at the time of a $10,000 loan (i.e., the loan was funded entirely from actual salary deferrals). All deferrals are post-1987. Six months later, the participant has repaid $300 in interest, $850 in principal, and the non-loan assets in the account have earned $1,000, so the participant’s balance (including the loan, now valued at $9,150) is $21,300. The participant has received no other loans or distributions. What is the current maximum hardship withdrawal available?



A) Lesser of i) $25,000 (inception-to date deferrals), or ii) $21,300 - $9,150, or $12,150 (i.e., current non-loan assets);

B) Lesser of i) $25,000, ii) $21,300 - $9,150, or iii) $10,000 + $850, or $10,850 (non-loaned deferrals plus repaid deferrals);

C) Other (explain).

A.) (It is my opinion that the hardship is really not related to the loan.) The participant would be eligible to take 25K if the account had that much $ and the plan allowed for it (deferrals since inception). That being said, you can't take what's not there. I say the max hardship is $12,150, the "cash" balance available. I know that this question has come up before because the hardship does not leave 50% of the balance as security for the loan but I believe I read somewhere that as long as the loan followed the terms of the plan at the time of the loan, you're ok to do the hardship subsequently. Sorry I don't have cites. Others??