Self-Certification for Hardship Withdrawals

The SECURE 2.0 Act of 2022 (SECURE 2.0) includes an optional provision that allows participants to self-certify that they meet the requirements when requesting a hardship withdrawal. If adopted, plan sponsors are no longer required to obtain documentation or have a participant provide specific information on the need for the hardship withdrawal.

While this change is likely welcomed by plan sponsors (as it relieves them of an administrative burden), it should not be misinterpreted as a total elimination of documentation requirements. The Internal Revenue Service (IRS) maintains that it is still the responsibility of plan sponsors to properly administer their retirement plans and keep up with current recordkeeping requirements.

Hardship Withdrawal Basics

A hardship distribution permits a participant to withdraw money from their account for an “immediate and heavy financial need.” Although there are two options for defining an “immediate and heavy financial need” (use the IRS safe harbor definition or use a custom definition), most plans choose the safe harbor definition for administrative simplicity and audit protection. In addition, self-certification is only available for the safe harbor definition, which includes:

• Medical expenses for the employee, the employee’s spouse, dependents or beneficiary.
• Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments).
• Expenses to prevent eviction from, or foreclosure on, the employee’s principal residence.
• Certain expenses to repair damage to the employee’s principal residence.
• Tuition, related educational fees, and room and board expenses for the next 12 months of postsecondary education for the employee or the employee’s spouse, children, dependents, or beneficiary.
• Funeral expenses for the employee, the employee’s spouse, children, dependents, or beneficiary.
• Expenses resulting from a FEMA-declared disaster.

Substantiating a Hardship Request

Prior to SECURE 2.0, participants were generally required to submit supporting documentation, including invoices, bills, or contracts, to validate both the hardship request and the specific withdrawal amount. With self-certification, the participant need only provide an electronic or written certification that:

• A qualifying hardship event occurred,
• The amount requested is no more than necessary, and
• The participant lacks other resources to meet the need.

The plan may rely on this certification unless it has actual knowledge that contradicts it.

Plan Sponsor Compliance Obligations

Many plans use a recordkeeper or third-party administrator (TPA) to process hardship withdrawals; however, the fiduciary responsibility remains with the plan sponsor. The sponsor must be able to demonstrate that the hardship distributions were in accordance with the plan document and applicable IRS requirements. If an auditor requests documentation, the sponsor is ultimately accountable.

While physical paper documentation from the participant is not collected, plan sponsors must still retain a copy of the participant’s signed or electronic self-certification in plan files and maintain clear administrative records. Failing to keep records or mismanaging distributions can trigger compliance issues during an IRS or other external audit. Sponsors should also ensure that there is a written or electronic record of the participant’s certification and the resulting distribution if the hardship withdrawal was initiated via telephone/through a call center.

Review the Process

Sponsors that have adopted hardship self-certification should review their plan’s procedures regularly and ensure that their recordkeepers or TPAs are following them as well. This will help identify and remedy any deficiencies before an auditor does. It is crucial that appropriate records are maintained and that they are accessible when needed. Documentation is key!

Please contact us if you have questions about the information outlined above; our seasoned and experienced employee benefit plan professionals are here to help.  You can also learn more on our Employee Benefit Plan services page.

About the Author

Related Services

Contact