February 10, 1989
TO: PENSION MEMBERS NO. 9-89
RE: IRS INFORMATION LETTER ON SECTION 401(k) HARDSHIP
WITHDRAWALS
__________________________________________________________
Under section 401(k)(2)(B)(i)(IV) of the Internal Revenue
Code and the proposed regulations thereunder, for plan years
beginning after December 31, 1988, hardship distributions under a
cash or deferred arrangement are limited to: (1) all elective
contributions; and (2) any earnings on such contributions, but
only if allocable as of December 31, 1988. Thus, the amount
eligible to be distributed on account of hardship is limited to
elective contributions and earnings thereon as of December 31,
1988 (referred to as the frozen amount) and any future elective
contributions.
Attached is a copy of an IRS information letter responding
to a request concerning the effect of a subsequent loss in the
account upon the frozen amount. The letter states that the
frozen amount eligible for hardship distributions is not adjusted
for any gains or losses after December 31, 1988. The frozen
amount is adjusted only for actual hardship distributions. If a
loss brings the value of the participant's account below the
frozen amount, however, the letter provides that employer
contributions that satisfy the section 401(k) vesting and
distribution requirements (and earnings thereon) may be
distributed on account of hardship to the extent necessary to
reach the frozen amount.
We will keep you informed of further developments.
Kathy D. Ireland
Assistant General Counsel
Attachment