The IRS recently issued guidance cautioning sponsors that they (not their TPA) are responsible for maintaining documents (electronically or in paper form) proving participant loans and hardship withdrawals comply with the law.

Participant Loans

According to the IRS, the plan sponsor should maintain copies of:

  • The loan application and record of review and approval;
  • An executed promissory note;
  • For home loans, proof that the proceeds were used to purchase; or build a primary residence;
  • Proof of loan repayment;
  • In the event of a default, proof of collection activities; and
  • In the event of a deemed distribution, a copy of the 1099-R.

Hardship Withdrawals

According to the IRS, the plan sponsor should maintain copies of:

  • The withdrawal application and record of review and approval;
  • Support for the “immediate and heavy financial need”; self-certification is never sufficient of demonstrate the nature of the hardship;
  • Proof the withdrawal was made in accordance with plan and tax provisions; and
  • Records of the distribution and related 1099-R.

Each loan or hardship withdrawal for which the plan sponsor does not have support is a failure that should be corrected using the service’s Employee Plans Compliance Resolution System (EPCRS).

If you have any questions, please contact our Albany office at (229) 883-7878 or our Atlanta office at (404) 220-8494.