Plan sponsors have been responsible for obtaining financial information and source documentation (bills, contracts, etc.) to substantiate financial need for hardship distributions. New guidance from the IRS makes it possible to use a summary document rather than obtain source documents, making it easier to substantiate financial need. Under this method, the participant is responsible to preserve source documents and provide them upon request.

What You Need to Know
Choosing to use the new summary document method is simple but comes with a caveat. If the summary document is not completed adequately or if a participant takes more than 2 hardship distributions in a plan year, you may be required to provide source documentation to substantiate the distributions. This may be problematic if the participant is no longer an employee at the time of an IRS audit.

What You Should Do
If your plan allows hardship distributions, you should:

  1. Download our Summary of Hardship Withdrawal Documentation and ensure you follow the instructions carefully.
  2. If you use our Hardship Withdrawal Request form, login to your plan account and download the revised version. Begin using the updated version immediately