Here are a few key points you may want to communicate to plan sponsors:

• Plans are not required to offer any hardship withdrawals. If hardship withdrawals are offered, the plan document must describe specific criteria used to make hardship determinations. It's possible to fix past mistakes by amending plan documents ASAP.

• Employers must have a process in place to verify that the employee requesting the withdrawal meets the law's requirement for an immediate and heavy financial need. In a list of "Do's and Don'ts," the IRS says employers should obtain specific ocumentation to verify the hardship. www.irs.gov/Retirement-Plans/Do's-and-Don'ts-of-Hardship-Distributions 

• The employer also must also document that the employee has exhausted any loans or resources available including insurance, bank accounts, and commercial/bank loans. Participants generally should suspend making elective deferrals to the plan, before taking hardship withdrawals.

• The amount of a hardship withdrawal may not exceed the amount needed to meet the immediate and heavy need. Also, the withdrawal is limited to the employee's cumulative elective contributions only, and may not include any earnings or employer contributions.

Given the increased regulatory scrutiny and compliance liabilities, small 401(k) plans may want to consider whether it still makes sense to permit hardship withdrawals.