Hardship Withdrawals:

1. Hardship Withdrawals: What Documentation Do I Retain?

2. Hardship Withdrawal: Agenda • Background on Hardship Withdrawals • Documentation Practices • Industry Issue Resolution Program • Comment Letter Process • Hardship Withdrawal Documentation/Practices – Examples • Panelists • Elizabeth Drake, Member, Miller & Chevalier • Will Hansen, Senior Vice President for Retirement Policy, ERIC Driven By and For Large Employers

3. Hardship Withdrawal: Background • Requirements: • Immediate and Heavy Financial Need • Used for Specific Purpose (Plan Sponsor May Select Safe Harbor Distributions – See Below) • Limited to Amount Necessary • Safe Harbor • Medical care expenses for the employee, the employee’s spouse, dependents or beneficiary. • Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments). • Tuition, related educational fees and room and board expenses for the next 12 months of postsecondary education for the employee or the employee’s spouse, children, dependents or beneficiary. • Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence. • Funeral expenses for the employee, the employee’s spouse, children, dependents, or beneficiary. • Certain expenses to repair damage to the employee’s principal residence. Driven By and For Large Employers

4. Hardship Withdrawal: Documentation Practices • IRS Regulations Silent on Documentation Process (§1.401(k)-1(d)(3)) • Common Plan Practice Delegated Documentation Process to Plan Administrator • IRS Stated in April 2015 Bulletin: “The plan sponsor must obtain and keep hardship distribution records. Failure to have these records available for examination is a qualification failure that should be corrected using the Employee Plans Compliance Resolution System (EPCRS).” • The plan sponsor should retain these records in paper or electronic format: • 1. Documentation of the hardship request, review and approval; • 2. Financial information and documentation that substantiates the employee’s immediate and heavy financial need; • 3. Documentation to support that the hardship distribution was properly made in accordance with the applicable plan provisions and the Internal Revenue Code; and • 4. Proof of the actual distribution made and related Forms 1099-R. Driven By and For Large Employers

5. Industry Issue Resolution Program (IIRP) • What is IIRP? • Program used by IRS Officials to Coordinate with Industry and Solve Taxpayer Issues • Prior to 2016, Program was not Available for Use w/n Tax Exempt & Government Entities Division (only Large Business and Small Business Tax Division Units) • Revenue Procedure 2016-19 Expanded Program to TE/GE • What is the Process? • Organizations/Groups with Particular Issue Submit Issue for Consideration • IRS Organizes In-Person Meeting with the Selected Industry Leaders • Comments Submitted by Outside Organizations Prior to In-Person Meeting • Purpose of Meeting is to Develop Solution to Problem/Issue Driven By and For Large Employers

6. Questions to Ask/Answer and Other Topics • If Required to Keep Documentation on Hardship Withdrawals: • How long does Plan Sponsor Retain Documents? • Where should the documents be retained (security parameters)? • Who should have access to the documents? • What documents should be retained (will it be enough to satisfy IRS audit)? • When should the documents be collected (prior to the completion of application)? • Is there Abuse in the Hardship Withdrawal Practice? • If there is Abuse, How do we Limit Abuse w/o Increasing Burden on Plan Sponsors? Driven By and For Large Employers

7. Next Steps • Draft Comments and Circulate to ERIC Members • Submit Final Comments to IRS by Friday, December 2, 2016 • In-Person Meeting with IRS on December 7, 2016 Driven By and For Large Employers

8. Hardship Withdrawal Documentation/Practices - Examples • Substantiation Documentation Collected with Application • Consistent with “historical” substantiation requirements • IRS auditors very interested in substantiation • Have not heard of problems in audit situations • Full Documentation Retained Electronically by Recordkeeper • Subject to Negotiated Privacy/Security Provisions • Subject to Negotiated Record Retention Requirements Driven By and For Large Employers