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Employee benefit plans with 100 or more participants are required to have an independent audit each year. Yet, ERISA is unique in that it allows plan administrators to opt for a limited scope audit of their financial statements.

Plan sponsors have long been held responsible for correcting elective deferral failures. These failures can occur when an employee is improperly excluded from the plan and is not provided the opportunity to make an affirmative election. But failures can also occur with deferrals based on a plan’s automatic contribution features (including automatic escalation).

Plan sponsors certainly create their employee benefit plans with good intent: to protect their employees’ financial well-being. But those good intentions can be for naught if employees don’t participate.

In most cases, participants’ immediate and heavy financial need must be established based on “all relevant facts and circumstances” before they are eligible to request a hardship distribution.

Just as with hardship distributions, it’s up to plan administrators to ensure that participant loans are in full compliance with IRS and DOL regulations, and that the loan process is thoroughly documented. Failure to do so can result in the loan being treated as a distribution, triggering tax consequences for the participant.

Managing participant hardship distributions has always required vigilance. The rules are complex, and it’s easy to step off the straight and narrow.