“For example, our plan allows loans but not hardship withdrawals, but another vendor contract may allow hardship withdrawals and not loans. Are those variations among the vendors permitted?”
That is a good question. Current thinking is that the plan can draft around that issue by providing that loans or hardship distributions are available, for example, to the extent permitted by, and subject to the terms of, the individual contracts or custodial accounts. Outside of the church and qualified church-controlled organizations; however, different availability of such rights or features might give rise to nondiscrimination concerns.
An administrator must be certain that it doesn’t lose sight of the most important objective, which is that if an employer keeps those other contracts and accounts outside of the national plan, the employer is responsible for getting the various vendors to share information with the employer, the administrator, or each other, to make certain the plan can be administered in the aggregate in compliance with 403(b). The arrangement may be easy to draft, but it may increase the difficulty of complying with the 403(b) rules in operation.
– David Powell, Groom Law Group, Chartered