Fidelity seeks clarification of IRS position on documentation for plan hardship distributions, participant loans

Fidelity Investments, on its website, has stated that it is working with industry and plan sponsor groups to get the IRS to modify or withdraw an article discussing the IRS position on documentation for plan hardship distributions and participant loans until formal guidance is issued. In the Employee Plans News, Issue Number: 2015-4, April 1, 2015, the IRS published an article explaining that plan sponsors are responsible for obtaining and keeping documentation of plan hardship distributions and loans.

In addition, the IRS stated that “electronic self-certification is not sufficient documentation of the nature of a participant’s hardship.” Fidelity noted that the IRS took a similar position concerning documentation of participant loans. Fidelity also thought that the article established “a new after-the-fact requirement that, if applicable, the plan sponsor must have `documentation verifying that the loan proceeds were used to purchase or construct a primary residence.’”

As Fidelity noted, the Employee Plans News does not have the effect of a regulation or formal interpretation. However, the publication may be indicative of the position the IRS is likely to take when reviewing plan procedures. According to Fidelity, the IRS “position does not appear to be supported by IRS regulations and is contrary to recent indications from IRS representatives suggesting that such documentation is not required. The Employee Plans News article has taken many practitioners by surprise because the IRS has had on its business plan an item to provide formal guidance on hardship substantiation. We are working with industry and plan sponsor groups to get the IRS to modify or withdraw the article until formal guidance is issued.”

Source: Fidelity Forum®, April 20, 2015.

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