Why Proper Documentation of Hardship Distributions and Plan Loans Is Critical for Plan Compliance

ARTICLE | February 03, 2026

Retirement plan administrators face a critical compliance challenge: maintaining proper documentation for hardship distributions and plan loans. The IRS has made it clear that insufficient recordkeeping can result in plan disqualification, a consequence that could affect all participants. Many plan sponsors mistakenly believe that participant self-certification or personal recordkeeping is adequate, but IRS audits reveal otherwise. From proving the nature of a financial hardship to documenting long-term home purchase loans, specific records must be retained by the plan sponsor. Understanding these requirements and implementing proper documentation procedures is essential for protecting your plan's qualified status and avoiding penalties through the Employee Plans Compliance Resolution System.

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