Plan Amendment Correction Method for Hardship Distributions Errors


If a plan makes a hardship distribution, the plan document must contain the appropriate language. Otherwise, the plan has an operational failure. Plan sponsors may correct this operational failure using the plan amendment correction method. This correction method may be available under the Self-Correction Program (SCP) if eligible, or the plan sponsor may make a submission under the Voluntary Correction Period (VCP). See Revenue Procedure 2019-19, Section 4.05 and Appendix B, Section 2.07.

Plan amendment correction method

This method requires the plan sponsor to retroactively amend the plan to permit hardship distribution. To use the plan amendment correction method, the plan sponsor must ensure:

  1. The amendment satisfies Internal Revenue Code Section 401(a), and
  2. The plan as amended would have satisfied the IRC Section 401(a) qualification requirements (including the hardship distribution requirements under IRC Section 401(k), if applicable) had the amendment been adopted when hardship distributions were first made available.

Example: Employer X, a for-profit corporation, maintains a 401(k) plan. Although the plan didn’t have language in 2014 – 2019 to permit hardship distributions, the plan made hardship distributions of amounts allowed to be distributed under IRC Section 401(k). The standard used to determine hardship satisfied the deemed hardship distribution standards in Treas. Regs. Section 1.401(k)-1(d). The plan sponsor discovered this operational failure and filed a VCP submission in 2018. Employer X proposes a retroactive amendment and corrects the failure under VCP by adopting a plan amendment in 2019, effective back to January 1, 2014, to provide a hardship distribution option (available to all employees) that satisfies the hardship distributions rules in Treas. Regs. Section 1.401(k)-1(d). The amendment satisfies IRC 401(a), and the plan as amended in 2018 would have satisfied IRC 401(a) (including Treas. Regs. 1.401(a)(4)-4 and the hardship distributions rules under IRC 401(k)) if the amendment had been adopted in 2014.

Self-Correction Eligibility:

The plan amendment correction method might be available under SCP if the failure was deemed to be insignificant. However, the known facts of the example, suggest this failure might be a significant operational failure. Significant failures must be corrected by the end of the 2nd plan year following the year of the failure. In this case, that deadline has expired for several of the plan years that experienced the operational failure involving hardship distributions. See Rev. Proc. 2019-19, Sections 4.04, Section 8 and Section 9 for additional information on SCP eligibility, the factors to consider in determining whether an operational failure is insignificant, and the deadline for fixing significant failures.  

Required items for VCP submission

Prior to an audit of the plan or plan sponsor, VCP is available to fix this failure via a retroactive plan amendment to conform the plan’s written terms to its operation even if the failure is significant. Additional information and specific steps include:

  1. Create a PDF that includes:
    • Form 14568, Model VCP Compliance Statement. This form is a model compliance statement. Use attachments to explain the failure, how you’ll correct it and the steps you’ll take to make certain the error won’t occur again.
    • Form 14568-I, Model VCP Compliance Statement - Schedule 9: Limited Safe Harbor Correction by Plan Amendment
    • A copy of the corrective plan amendment that retroactively conforms the plan document to the plan’s operation with regards to hardship distributions
    • Copies of applicable items listed in the Enclosure List of Form 14568-L, Section III
  2. VCP submissions are not free. A user fee must be paid by the employer who sponsors the retirement plan that was not timely amended. The applicable user fee is based on the total amount of assets in your plan. See the VCP Fee Schedule
  3. Make your VCP submission via
    • Go to and create an account
    • After signing in, search for Form 8950, Application for Voluntary Correction Program
    • Click on the link that will take you to the version of Form 8950
    • Follow the Form 8950 Instructions

Additional resources