Plan Sponsor of the Year Awards Dinner
We had the fantastic opportunity to join one of our clients, Wheelabrator Group, at the Plan Sponsor of the Year Awards dinner in New York this last weekend. It was great to be surrounded by so many people who obviously care a great deal about their employees.
Wheelabrator made several changes to their retirement plan that showed an obvious dedication to their employees and addressed their specific needs. One of the most powerful changes they made was to shift to auto enrollment (and reenrollment of nonparticipating employees). There was a paradigm shift when the employer assumed participation rather than non-participation. By changing the default to assuming enrollment and requiring an opt-out rather than an opt-in, enrollment increased from 71% to 94%. .
In addition to this change, Wheelabrator provided a holistic financial education for their employees. 12% of the employees are Spanish speaking, so they relied on the help of Vanguard to provide Spanish education. Many of their employees felt like they couldn’t take the hit on their paycheck that saving would cause, so the education focused on budgeting and creating an overall financial strategy. Additionally, a 1% auto increase was added up to a 10% ceiling. Due to the education and the auto increase the average employee deferral rate increased from 6.6% to 8.8%.
You can read more about all the changes Wheelabrator Group made here.
We are so proud of our client for being a finalist, and the hard work they put into implementing a plan that benefits their employees.
What to Collect When Processing a Hardship Distribution
The following is a list of specific documents that the employer must collect based on each type of hardship. The employee must keep these documents available for the employer at all times.
To read a general overview of the employer’s responsibilities during a request for a hardship distribution, click here.
I. Notifications that the Employer/Administrator Must Provide to the Employee
- The hardship distribution is taxable and additional taxes could apply.
- The amount of the distribution cannot exceed the immediate and heavy financial need.
- Hardship distributions cannot be made from earnings on elective contributions or from QNEC or QMAC accounts, if applicable.
- The recipient agrees to preserve source documents and to make them available at anytime, upon request, to the employer or administrator.
II. General Information for All Hardship Requests
- Participant’s name
- Total cost of the event causing hardship (for example, total cost of medical care, total cost of funeral/burial expenses, payment needed to avoid foreclosure or eviction)
- Amount of distribution requested
- Certification by the participant that the information provided is true and accurate
III. Specific Information on Deemed Hardships
A. Medical Care
- Who incurred the medical expenses (name)?
- What is the relationship to the participant (self, spouse, dependent, or primary beneficiary under the plan)?
- What was the purpose of the medical care (not the actual condition but the general category of expense, for example, diagnosis, treatment, prevention, associated transportation, long-term care)?
- Name and address of the service provider (hospital, doctor/dentist/chiropractor/other, pharmacy)
- Amount of medical expenses not covered by insurance
B. Purchase of Principal Residence
- Will this be the participant’s principal residence?
- Address of the residence
- Purchase price of the principal residence
- Types of costs and expenses covered (down-payment, closing costs and/or title fees)
- Name and address of the lender
- Date of the purchase/sale agreement
- Expected date of closing
C. Educational Payments
- Who are the educational payments for (name)?
- What is the relationship to the participant (self, spouse, child, dependent, or primary beneficiary under the plan)?
- Name and address of the educational institution
- Categories of educational payments involved (post-high school tuition, related fees, room and board)
- Period covered by the educational payments (beginning/end dates of up to 12 months)
D. Foreclosure/Eviction from Your Principal Residence
- Is this the participant’s principal residence?
- Address of the residence
- Type of event (foreclosure or eviction)
- Name and address of the party that issued the foreclosure or eviction notice
- Date of the notice of foreclosure or eviction
- Due date of the payment to avoid foreclosure or eviction
E. Funeral and Burial Expenses
- Name of the deceased
- Relationship to the participant (parent, spouse, child, dependent, or primary beneficiary under the plan)
- Date of death
- Name and address of the service provider (cemetery, funeral home, etc.)
F. Repairs for Damage to Principal Residence
- Is this the participant’s principal residence?
- Address of the residence that sustained damage
- Briefly describe the cause of the casualty loss (fire, flooding, type of weather-related damage, etc.), including the date of the casualty loss
- Briefly describe the repairs, including the date(s) of repair (in process or completed)
Hardship Distributions – What is your responsibility as an employer?
When an employee requests a hardship deduction, it can seem to be a great deal of work for an employer. Recent changes requiring more specific substantiation will go into effect on February 23, 2019.
Use these three steps as a quick guide to ensure you are meeting your responsibility as an employer.
Step 1: Ensure the 401(k) plan has language that includes hardship distributions. (If it does not, see here how to make changes.)
Step 2: Determine if the hardship of the employee fits the definition of a hardship.
A hardship, as defined by the IRS is “made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need.”
The need can be one of the following (for employee, spouse, dependents or non-dependent beneficiaries):
- Certain medical expenses
- Costs related to buying a principal residence
- Tuition and related educational fees
- Payments necessary to prevent eviction or foreclosure on principal residence
- Burial or funeral expenses (for employee’s deceased parents as well)
- Certain expenses caused by damage to a primary residence
Once these two criteria are met, you can use this simple checklist to complete the process:
Step 3: Checklist
- Notify the employee
- Hardship is taxable
- Distribution amount cannot exceed cost of hardship
- All records related to the distribution must be kept and available
- Collect general information
- Reason
- Cost
- Amount requested
- Certification of truth and accuracy of information
- Gather the specific documents listed HERE
- Ensure documentation substantiates the hardship distribution
- Determine if the employee has taken advantage of the hardship distributions in the past
- Has the employee received more than 2 hardship distributions in a plan year?
- If yes, did they have an adequate explanation?
- If no, request more documentation on past distributions
- Clarify that the employee has no other financial means of alleviating the hardship
- Check the amount distributed is not greater than the financial need of the hardship
- Keep a record of all information used to determine if the employee was eligible for the hardship
For more detail on the recent changes to the hardship distribution rules, click here.
Find other do’s and don’ts of hardship distributions here.
Plan Sponsor of the Year Finalist
2017 Plan Sponsor of the Year Finalists Categories
Read more about the Plan Sponsor of the Year award here:
2017 Plan Sponsor of the Year Finalists Categories
Positive Thinking – Fiduciary Rule
Some brokerages have already rolled out a number of changes to comply with the fiduciary rule and are sticking with plans to improve disclosures to investors—regardless of the rule’s fate.
When Linda and Bill came into my office, I could sense their hesitancy right away. And when they told me their story, I could understand why they were so apprehensive about meeting with a financial advisor. They had, quite simply, learned not to trust.
Are financial advisers trying to part you from your money in ways you don’t understand? Ask them this set of questions.
Are financial advisers trying to part you from your money in ways you don’t understand? Ask them this set of questions.
Congress “gave the DOL broad discretion” to protect retirement investors, the decision says.
Until we hear differently, we’re going to continue thinking positively and counting down to the April 10th date!
Fiduciary Rule Countdown
Only
Until retirement advice is free from conflicts in America!
Access Denied? Download DOL Fiduciary Rule FAQs Here
Hoping to read the Consumer FAQs that the DOL published? Unfortunately, they are no longer available on their website. The page that used to host the FAQs now simply says “Access Denied.” Don’t worry, we have you covered! You can download the FAQs below.
Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.