MARCH 2006 Pension Plan tip of the month...

Many plans provide that amounts contributed on your behalf as salary reductions may be withdrawn if you have an immediate and heavy financial need, as defined by the IRS.

 

An immediate and heavy financial need can arise for one of the following safe harbor reasons:

  1. medical expenses which you, your spouse or dependents incur or necessary for you, your spouse or dependents to obtain medical care.  These must be expenses described in Section 213 of the Internal Revenue Code;
  2. to purchase your principal residence;
  3. to pay tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for you, your spouse, children or dependent;
  4. to prevent your eviction from your principal residence or the foreclosure on your principal residence;

New in 2006:

  1. funeral expenses of parent, spouse, children or dependents; or
  2. certain expenses relating to the repair of damage to your principal residence that would qualify for the casualty deduction, such as those resulting from hurricane or flood damage.

Please note a plan amendment will be required to finalize these new provisions.  Although the language for this amendment is not finalized, the new safe harbor regulations can be implemented into the plan prior to a formal amendment. We will provide this amendment as soon as its final language becomes available.

 

Also, in order to qualify for a withdrawal, you must have no other resources or savings to take care of the immediate and heavy financial need.  Under special rules permitted by the IRS you will be considered not to have sufficient resources to meet the immediate and heavy financial need, but only if:

  1. the hardship distribution we make to you is not in excess of the immediate and heavy financial need;
  2. you have already obtained all distributions (other than a hardship distribution) and non-taxable loans available (unless loan would be counterproductive) from any plan; and
  3. you agree not to make salary reduction contributions for at least a six month period after you receive the hardship distribution