Does our Betterment retirement plan offer hardship distributions?
Hardship distributions may be available, depending on your plan’s specific settings or design found in your Summary Plan Description or other plan documents (plan documents). As a Plan Sponsor, you can review your plan documents or contact Betterment to confirm whether hardship withdrawals are an option for your employees.
How can employees check if they’re eligible for a hardship withdrawal?
Employees can log in to their Betterment account through the web browser and navigate to Transfer or rollover or Withdraw and select their desired account, in order to see their available withdrawal options based on their particular plan. Hardship withdrawals may require employer approval, and eligibility is subject to IRS regulations and plan rules. Employees must self-certify that they meet the necessary financial hardship criteria. If they have questions, they can contact Betterment support for assistance.
What should we communicate to employees about hardship withdrawals?
Employees should understand that:
- Hardship withdrawals generally require employer approval.
- Employees self-certify that they meet IRS-defined hardship criteria.
- Employer contributions are not eligible for withdrawal.
- A 10% early withdrawal penalty may apply under IRS rules depending on if they meet criteria the IRS sets out in the guidance linked below.
- A $75 processing fee typically applies, depending on the plan’s fee agreement.
- Once approved, distributions typically take 5 business days to process.
Providing clear guidance on these points can help employees make informed decisions. Participants can also contact Betterment support for additional information.
What if our plan doesn’t offer hardship withdrawals?
If hardship withdrawals aren’t included in your plan, employees will need to explore other financial relief options, such as loans or alternative savings. If you’re considering adding hardship distributions to your plan, Betterment can assist with plan modifications.
How can we support employees considering a hardship withdrawal?
Encourage employees to carefully evaluate their financial needs and potential tax implications. You may also want to provide access to financial wellness resources or direct them to Betterment support for further guidance.
What is my responsibility when reviewing a hardship distribution request?
As a plan sponsor, you are responsible for ensuring the request complies with your plan’s rules and IRS regulations. Employees must self-certify that they meet the hardship criteria, but it’s important to review the request for accuracy and where applicable get substantiating documentation, before approving or rejecting it in the Tasks section of your Betterment account.
Visit the following link for more information: Its Up to Plan Sponsors to Track Loans Hardship Distributions | Internal Revenue Service
What are the requirements for a hardship distribution?
Hardship distributions are subject to IRS regulations and must be taken due to an immediate and heavy financial need. Employees must self-certify that they meet the IRS-defined hardship criteria, which typically include expenses such as medical costs, tuition, funeral expenses, or preventing eviction or foreclosure. For a full list of qualifying hardships, refer to the IRS guidelines on hardship distributions.
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