Hardship Withdrawal Requests should have documentation

A few weeks back, an advisor told me that a large bundled provider is offering some sort of hardship withdrawal service that allows participants to get a quick withdrawal as long as they state that they have an immediate and heavy financial need.

As an ERISA attorney who used to review hardship requests when I worked for a third party administrator, I don’t think that’s enough. Taking someone’s word isn’t enough when it comes to the qualification of a retirement plan. Hardship withdrawals should always come with documentation that shows that a participant has a financial need. Otherwise, it becomes an avenue for cunning participants to get a withdrawal request in order to circumvent the in-service distribution requirement of plans that usually require the attainment of age 59 ½.

Since the economy has been on a roller coaster ride since 2000, I would not be surprised that the Internal Revenue Service starts reviewing the hardship withdrawal procedures of retirement plans. So I advise all plan sponsors to make sure that the process is documented and requires plan participants to who something more than their word that they actually have an immediate and heavy financial need.

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