Bud
Jun 24 2002, 07:36 AM
My company wants to amend our plan to provide for safe harbor hardship withdrawals because the admin committee doesn't have the time to review hardship applications and decide on a facts-and-circumstances basis. We also have a stock purchase plan that creates a major part of employees' compensation. The 401(k) regs require participants who take a hardship withdrawal to stop contributing to other plans, such as a stock purchase plan, for 6 months. If we don't go with safe harbor, we will probably stop allowing hardship withdrawals because of the time drain.
Can anyone suggest a way to get around the 6-month suspension from the stock purchase plan? Could some one who has a client with safe harbor hardship withdrawals and stock based compensation plans share what their client does about the 6-month suspension period? Do company's with stock plans have plan documents that provide for the facts-and-circumstances standard, but in reality operate with safe harbor standard and disregard the 6-month suspension?
Thanks
MWeddell
Jul 2 2002, 06:51 AM
I suggest you read Treas. Reg. 1.401(k)-1(d)(2) carefully and this is what you'll find:
There are two halves to the hardship withdrawal regulation. First is the events test where your choices are (i) general test or (ii) safe harbor test or (iii) both. Second is the resources test where your choices are (i) general test, (ii) general test with employee's written representation, (iii) safe harbor test, (iv) both general test and safe harbor test, and (v) both general test with employee's written representation and safe harbor test. The suspension is in Treas. Reg. 1.401(k)-1(d)(2)(iv)(B)(4), part of the the safe harbor test of the resources test. EGTRRA and IRS guidance not yet incorporated in the regulations shortened the suspension period to 6 months and also eliminated Treas. Reg. 1.401(k)-1(d)(2)(iv)(B)(3).
If you'd like to minimize employer discretion and the time it takes to administer hardships but yet still avoid the suspension requirement, I suggest you consider using the safe harbor test for the events test but use the general test with employee's written representation for the resources test.