Employer with 401(k) plan wants to amend the plan so that a hardship distribution can only be taken one time by a participant for the time they are in the plan. I've never seen anything like that before in a plan, is it allowable?

Given that offering a hardship withdrawal feature is not mandatory, and that, as I recall, such a feature can be removed without violating the protected benefit rules, it seems to me that such a restriction would be acceptable. It would certainly be uncommon, however.

That change may hurt plan participation, which may affect the ADP test results.

It could also be hard to administer if you have long-term employees. Are they going to remember 20 years from now that a participant took a distribution this year?