Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.
Over the next few weeks 401kBasics is going to review the common mistakes that plan sponsors make in administering their plan, how to find the mistake and how to correct the mistake. The tenth common mistake is failure to check is hardship distributions were made properly.
- How to Find the Mistake: Review all in-service distributions and determine that hardship distributions met the plan requirement.
- How to Fix the Mistake: EPCRS. Amend plan to retroactively allow for hardship distributions. If impermissible hardship distribution, have participant return hardship distribution amount plus earnings.
The correction programs available include SCP, VCP and Audit CAP, depending upon the situation.
This mistake can be avoided in the future by being familiar with your plan document’s hardship provisions. Implement procedures to ensure you follow the provisions in operation. Ensure that your plan administrators and payroll offices share the plan’s distribution information. For more information please refer to potential mistake number 10 on the IRS 401(k) Fix-It Guide.
This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.
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