What is the primary factor that must be considered when processing hardship distributions?

The primary factor that must be considered when processing hardship distributions is the acceptable proof of the hardship. This is crucial because, under IRS regulations, participants must demonstrate that they are facing an immediate and urgent financial need to qualify for a hardship distribution. The acceptable proof provides the necessary documentation that substantiates the claim of hardship, ensuring compliance with regulatory standards.

When evaluating hardship requests, the plan administrator must verify that the circumstances meet the criteria defined by the plan and federal regulations. These criteria typically include situations such as medical expenses, purchase of a primary residence, payment of tuition, or prevention of eviction. A clear and valid proof of the hardship is essential in justifying the distribution request and protecting the plan's compliance with tax rules.

Considering the other options, while frequency of processing hardship distribution requests and minimum withdrawal amounts may have operational implications, they do not have a direct effect on the eligibility for a hardship distribution. Similarly, the requirement to look for other sources of funds prior to applying for a hardship distribution is an important consideration but secondary to the need for validated proof of the financial hardship itself. The integrity of hardship distribution processing primarily relies on establishing that the financial need is legitimate and substantiated.