- Vesting percentage
- Maximum available for in service distributions or loans
- Verify the Participant Self Certification Form* for hardship withdrawals are complete with plan sponsor and participant signatures.
Distributions
Distributions
A vast majority of the distribution and loan requests will be performed online via the recordkeeper. All participants must log on to the site or contact the Call Center to complete the required distribution paperwork online. Once the distribution form is completed and submitted online, the recordkeeper will notify the DWC Distribution Team of an outstanding distribution for review. Our review process for all distributions and loans reviews the following:
One of the most common plan sponsor errors when starting a new plan is the timing of the first deferrals and delivery of required notices.
To eliminate this risk, make sure you work with your payroll provider to make sure you know how to set up deferral amounts on the system as well as upload to the recordkeeper. If you are utilizing 360 integration, don't assume it will work on the first payroll - set-up a conference call with your recordkeeper on the day of the first payroll to make sure they have received the payroll through integration properly.
If your plan is using an automatic enrollment feature, make sure you are capturing all eligible participants on the first payroll.
Online Process for Distributions
The step-by-step process is as follows:
- Participant initiates a distribution request on the recordkeeping site
- Recordkeeper electronically notifies DWC of completed and submitted distribution forms.
- DWC reviews the distribution. For distribution requests received in accurate and complete order within four hours of market close DWC will review and either accept or reject the distribution within one hour of market close. For example, all distribution forms received by noon ET when the market closes at 4 pm ET will be reviewed by 3 pm ET. In the event any clarification is needed (typically vesting or missing information, such as a signature) or should the participant be ineligible for the distribution we will contact you for additional information or reject the request on the Transamerica system. If the vesting is incorrect, the plan sponsor, recordkeeper or DWC can update the system. If the distribution is in good order, proceed to Step 4. If the distribution is rejected online by DWC, most recordkeepers will send a rejection email to the participant, others may delete the request. DWC will send a rejection email to the plan sponsor. Note: If the request is for a hardship withdrawal, we may reject the distribution if we do not have the hardship withdrawal self-certification form. The hardship distribution can be processed without the self-certification form, however this will require the plan sponsor to verify the hardship withdrawal meets the IRS hardship safe harbor standard.
- DWC electronically approves the distribution via the recordkeeping system. Please note, most recordkeepers have dual approval for all distributions which requires the plan sponsor and DWC to authorize online. Some recordkeepers only have one approval – in these cases we will default this approval button to the plan sponsor to approve after we send the authorization email.
- Recordkeeper processes the distribution within their timeframe.
- Recordkeeper is responsible for delivering the check or electronic payment (as instructed by the distribution form) and for preparing/delivering the IRS Form 1099-R to the participant.
Hardship Withdrawal Requests
The criteria for requesting and approving a hardship distribution has evolved per the IRS clarifications in 2019. The IRS has made available the Summary Substantiation Method for sponsors to review and approve hardship requests for the safe harbor hardship distribution categories. This is a participant self-certification process that eliminates the need for the plan sponsor or any entity to ask for the plethora of supporting documents for their hardship withdrawal request. Per the IRS process, the self-certification form requires the Plan Sponsor signature.
The IRS Hardship Substantiation Details
The link to the IRS and excerpt below document the IRS examination steps (the IRS auditors must follow).
- If you (referring to the IRS agent if your plan is under audit) determine that all applicable requirements in Step 1 (the questionnaire/summary form) and Step 2 (questionnaire/summary form completed consistently) are satisfied, treat the plan as satisfying the substantiation requirement for making hardship distributions deemed to be on account of an immediate and heavy financial need.
Here are the salient points from the IRS hardship substantiation (copied in below):
- If the notification provided to employees in Step 1(2) or the information reviewed in Step 2(2) is incomplete or inconsistent on its face, you (referring to the IRS agent if your plan is under audit) may ask for source documents from the employer/ third-party administrator to substantiate that a hardship distribution is deemed to be on account of an immediate and heavy financial need.
- If the summary of information reviewed in Step 2(2) is complete and consistent but you find employees who have received more than 2 hardship distributions in a plan year, then, in the absence of an adequate explanation for the multiple distributions and with managerial approval, you (referring to the IRS agent if your plan is under audit) may ask for source documents from the employer or third-party administrator to substantiate the distributions.
It basically says that the only times an IRS agent is to ask for additional documentation are if either the summary information is incomplete or the participant has received more than 2 hardships during the same plan year. Other than that, the hardship is deemed to be ok.
DWC Comments: That is clear examination procedure. If the plan sponsor asks for the supporting documentation – the plan sponsor loses the summary substantiation procedure.
DWC will not review/approve hardship withdrawal requests outside of the IRS Summary process, however we will guide all plan sponsors in their determination.
A common error with conversion plans is plan sponsors failing to segregate payrolls from the company during the blackout period. If your new recordkeeper will not accept uploads to invest in a money market type fund, then make sure you set up a separate bank account titled 'XYZ Plan Assets'. When you run payroll, wire, transfer or ACH the monies to the bank account.
This will satisfy the Department of Labor requirement for segregating assets. When the plan comes out of blackout, upload your payroll and wire the monies from the new separate account.
