A recent post in the IRS’s Employee Plans News has two important tips for employers who sponsor 401(k) and similar plans:

  1. The plan sponsor is ultimately responsible for maintaining records that document compliance with tax-qualification requirements. Many employers rely on third-party administrators to maintain records of day-to-day transactions, such as loans, hardship withdrawals and distributions. It is important to confirm with the third-party administrators that the records are being kept and that the sponsor will have access to the records–in a usable format–including after the sponsor changes administrators.
  2. The IRS expects the administrator to collect documentation in support of any hardship withdrawal–saying “[i]t’s not sufficient for plan participants to keep their own records of hardship distributions.”

In an effort to streamline plan administration, some third-party administrators have promoted a simplified procedure that would allow employees to get hardship withdrawals without submitting documentation.
Continue Reading IRS Issues Warning on Documentation Requirements for 401(k) Plans