New Responsibilities for Retirement Plan Sponsors – Hardship Documentation

On April 1st, the IRS clarified its requirements for sponsors of qualified retirement plans (like 401(k) plans) that permit participants to take hardship distributions. Where sponsors may have once taken a participant at his word regarding his “immediate and heavy financial need,” the new IRS communication specifies that the burden is now on the plan sponsor to collect from the participant some tangible proof of his “immediate and heavy financial need.”

Therefore, plan sponsors will need to obtain documentation from any participant making a hardship request; self-certification by the participant will no longer suffice. The documentation must verify both the need for a hardship distribution and the dollar amount requested. Depending on the situation and the type of hardship claimed, such documentation might look like a medical bill or a foreclosure notice; plan sponsors with questions should contact their third-party administrator for further assistance.