For Company-sponsored retirement plans which have a hardship distribution or participant loan features, please make sure you take the appropriate steps in obtaining documentation to pass IRS scrutiny.

Under IRS guidance, it is the responsibility of the plan sponsor to:

  • Maintain evidence of all relevant documentation for each participant loan (such as for the application and approval, the executed note receivable from participant and repayments)
  • Document the nature of the hardship distribution (e.g., that it was a permitted distribution) even if the service provider only required the participant to “self-certify” that the hardship criteria were met.

Visit their site for additional details on what specifically the IRS is saying. So even if your third party administrator provides an “e-certificate” of some sorts, that is not good enough documentation of approval under IRS scrutiny. Contact your Somerset Employee Benefit Plan team advisor to help make sure your internal controls are appropriate when it comes to documenting hardship distributions and participant loans.