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 2021-30PDF, 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 allow hardship distributions. 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 met the IRC Section 401(a) qualification requirements (including the hardship distribution requirements under IRC Section 401(k)) if the amendment had been adopted when hardship distributions were first made available.

Example: Employer X maintains a 401(k) plan. Although the plan didn't have language in 2014 – 2019 to permit hardship distributions, the plan made hardship distributions during those years. The amounts distributed were allowed to be distributed under IRC Section 401(k). The standard used to determine the hardship distributions satisfied the standards required in Treas. Regs. Section 1.401(k)-1(d). Employer X discovered the operational failure and filed a VCP submission in 2018. The employer proposed adopting a retroactive amendment to correct the failure under the VCP. The retroactive amendment was adopted in 2019 and was effective as of January 1, 2014, to provide a hardship distribution option that was available to all employees and satisfied the hardship distributions rules in Treas. Regs. Section 1.401(k)-1(d). The amendment satisfied IRC 401(a), and the plan, as amended in 2019, 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:

If the failure is insignificant, you can use the plan amendment correction method under SCP. However, the facts of this example suggest that the failure was significant. Significant failures must be corrected by the end of the 2nd plan year after the year of the failure. In this case, that deadline has passed for several of the plan years with the hardship distribution failure. See Rev. Proc. 2021-30, Section 4.04, Section 8 and Section 9 for additional information on SCP eligibility, the factors used to determine if an operational failure is insignificant, and the deadline for fixing significant failures.

Required items for VCP submission

VCP is available to fix the failure before the plan or plan sponsor is audited by the IRS. Even if the failure is significant, you can use VCP to correct the failure through a retroactive plan amendment to match the plan's written terms to its operation. Additional information and specific steps are shown below:

  1. Create a PDF that includes:
  2. VCP submissions are not free. The employer who sponsors the retirement plan must pay a user fee for the VCP submission. The fee is based on the total amount of assets in the 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 takes you to the version of Form 8950
    • Follow the Form 8950 InstructionsPDF

Additional resources