The amount of salary deferrals available for a hardship is supposed to be the cumulative salary deferrals without adjustment for gains or losses. But when there is a loss it seems like it must be adjusted because you can't distribute more than is in the account. If the only money in the account is deferral source, it's easy, but what if there is other money available? Example: cumulative deferrals $20,000, current deferral balance $13,782. The available hardship is supposed to be $20,000, but to distribute that amount would require taking $6,218 from profit sharing or match that do not allow hardship distributions.
Related quandary, what about mutual fund loads? The money is not in the account, but theorietically it seems like not including the full amount withheld from pay violates the rule about not adjusting for gains or losses.
Full Version: available hardship amount
I think this is a matter of interpretation. I do not know of any regulation or ruling on point.
The plan limits loan amounts. One interpretation is that the cumulative elective deferrals, without adjustment for investment experience, is merely a measurement of that limit. As there are sufficient benefits, elective deferral and profit sharing, that a loan to that limit may be made without violating any IRS rules, then the loan should be allowed up to that amount. This would be so despite the facts that all of the loan cannot be allocated to just the elective deferrals and some of the loan will have to be allocated to the profit sharing benefits. That interpretation impinges less on the notion that it is the cumulative elective deferrals without adjustment for investment gains or losses.
Another seemingly viable interpretation would be that the plan does not permit loans by reason of profit sharing benefits, and thus it is logical that a loan cannot be made to the extent that any part of it would have to be allocated to profit sharing benefits.
I think both would be viable interpretations, and whichever is adopted should then be applied in future situations.
The plan limits loan amounts. One interpretation is that the cumulative elective deferrals, without adjustment for investment experience, is merely a measurement of that limit. As there are sufficient benefits, elective deferral and profit sharing, that a loan to that limit may be made without violating any IRS rules, then the loan should be allowed up to that amount. This would be so despite the facts that all of the loan cannot be allocated to just the elective deferrals and some of the loan will have to be allocated to the profit sharing benefits. That interpretation impinges less on the notion that it is the cumulative elective deferrals without adjustment for investment gains or losses.
Another seemingly viable interpretation would be that the plan does not permit loans by reason of profit sharing benefits, and thus it is logical that a loan cannot be made to the extent that any part of it would have to be allocated to profit sharing benefits.
I think both would be viable interpretations, and whichever is adopted should then be applied in future situations.
QUOTE (J Simmons @ May 18 2009, 01:15 PM) 
... loan amounts ...
John, do you mean loan or hardship?
Thank you, Masteff, I do. It's another manic Monday.
QUOTE (J Simmons @ May 18 2009, 01:15 PM)
Another seemingly viable interpretation would be that the plan does not permit hardships by reason of profit sharing benefits, and thus it is logical that a hardship cannot be made to the extent that any part of it would have to be allocated to profit sharing benefits.
Having adjusted this sentence for John's Manic Monday.... this is the interpretation that I'd concur with, based predominantly on the grilling we took from the IRS during audit on some wdrwls that met a similar fact pattern. My take on it is that you limit the hardship to the current deferral balance. So to use the numbers in the OP, only the $13,782 could be withdrawn. This would be regardless of the cause for the shortfall (ie losses or mutual fund loads or plan fees or whatever).
QUOTE (masteff @ May 18 2009, 05:30 PM)
QUOTE (J Simmons @ May 18 2009, 01:15 PM)
Another seemingly viable interpretation would be that the plan does not permit hardships by reason of profit sharing benefits, and thus it is logical that a hardship cannot be made to the extent that any part of it would have to be allocated to profit sharing benefits.
Having adjusted this sentence for John's Manic Monday.... this is the interpretation that I'd concur with, based predominantly on the grilling we took from the IRS during audit on some wdrwls that met a similar fact pattern. My take on it is that you limit the hardship to the current deferral balance. So to use the numbers in the OP, only the $13,782 could be withdrawn. This would be regardless of the cause for the shortfall (ie losses or mutual fund loads or plan fees or whatever).
I agree with this.
Thanks to all!
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