Plan has a partiicpant who is interested in taking a hardship to pay back taxes. This plan has the AccuDraft prototype 401(k) (Basic Plan 01). The plan allows for hardships for the typical reasons, outlined in Section 5.19(b): medical, post-secondary ed, to purchase primary residence, to prevent evection or foreclosure on primary residence, funerals, and "any other immediate & heavy financial need as determined by the administrator in a uniform non-discriminatory manner." I asked TAG if this participant's request could be granted, as per above, and the response I got was no. I think what TAG is trying to tell me is that the plan should not have both the safe harbor standards and a facts & circumstance option. Tag cited announcement 94-101. This plan document, while not created by us, was dated 1/1/04.

Anyone out there use this document, and if so, would this request be permissable?
Thanks, gang!

I am confused. If the plan has that last catch-all "any other immediate & heavy financial need as determined by the administrator in a uniform non-discriminatory manner", does it really have safe harbor standards then? Seems to me it's safe harbor standards plus a little more, meaning it's not safe harbor standards.

That third eye is amazing--it let's you see so much more! (seriously, good observation)

Yes, I thought the same thing when I read it on Tuesday. Since we don't use this document, I wasn't sure if this was selelcted by the client, or standard. I submitted the question to TAG, and I think they were telling me in a roundabout way that the plan can't have both the safe harbor standards and the facts & circumstances.

The worst part is that this client is a law firm, and apparently they have been looking this over and think it's ok....

If the document is from 2004, have you checked the Final 401(k) amendment to see if it made any changes to the hardship provisions?

We had an administrative practice get questioned on audit (had to do w/ how we were doing gross-ups on hardship w/drwls). The general impression I got was that safe harbor hardship reasons aren't "all or nothing" for the plan. It's just that by going outside the safe harbor list, you accept an element of risk that the Service will disagree w/ your analysis and that one w/drwl could then be a violation. If you had 20 other w/drwls during the year and they all met one of the safe harbor reasons, then they continue to be okay even if the one gets declared invalid.

Going back to the OP... the question is what type of back taxes and what does the letter from the collecting authority say? Do they allow the person to apply to make payments over the course of a few years? Then it's not immediate and you have to deny it.