Audit Partner
The Secure 2.0 Act of 2022 changed the rules for hardship withdrawals for employee benefit plans by allowing Plan Sponsors to rely on self-certification by an employee for a hardship withdrawal in lieu of requiring documentation. An employee must certify that they a) have an immediate and heavy financial need, b) the distribution is not greater than the financial need, c) the employee has no other means to meet the need, and c) the financial need is permitted by IRS regulations. This change has allowed Plan Sponsors to streamline the hardship distribution process, which provides for quicker distribution to participants. Below are some recommended best practices that can assist the Plan Sponsor with the self-certified hardship distribution process:
- Plan Sponsors should obtain a new or revised service agreement with their custodian that includes the hardship self-certify services.
- Plan Sponsor should understand how to obtain hardship self-certification support from its custodians for its auditors.
- Plan Sponsors should review hardship transactions on a regular basis for potential participant abuse or misrepresentation.
- Plan Sponsors should educate employees on hardship withdrawal provisions, which include defining financial need, potential penalties for false self-certification, and their need to retain support of need should an IRS agent request it.
Contact your WFY advisor to learn more about this topic here. You can also sign-up for our newsletter here to receive more updates.
Wright Ford Young & Co. is headquartered in Irvine, CA and is the largest single office CPA firm in Orange County. WFY is a full service corporate accounting firm offering audit, tax, estate and trust, and business consulting services to closely held company and family business owners. More information about our Firm can be found at www.cpa-wfy.com.