Certified Plan Sponsor Professional (CPSP) Practice Exam

A plan can permit a hardship distribution from which type of account?

1. Only employee salary deferral accounts

2. The vested account only

3. All accounts

4. Employer profit-sharing accounts only

The correct answer is: All accounts

A plan can permit a hardship distribution from all accounts, which includes employee salary deferral accounts, vested employer contributions, and other types of contributions made into the plan. The Internal Revenue Service (IRS) guidelines allow for hardship distributions under certain conditions, which are not limited to one specific type of contribution. For example, if an employee experiences an immediate and heavy financial need, they can access their salary deferral contributions, as well as any contributions that have vested, including profit-sharing contributions. This flexibility is crucial in ensuring that participants have access to funds when they face financial emergencies, thus providing them with a safety net. The options that restrict distributions to only specific types of accounts limit access unnecessarily and do not align with the broader regulations that govern hardship distributions as per IRS guidelines. Hence, the correct answer reflects the inclusive nature of hardship distributions across various account types within a retirement plan.