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Rollover to IRA in excess of $5,000 without consent; what remedy for p


Guest RBeck
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A participant terminates employment, leaves an account balance in excess of $5,000 in the plan. Some months later, former ee is told that the company is switching 401(k) plan providers. He is given all paperwork necessary to elect to roll his funds into an IRA at the current provider. He does this in December 2002. He sends follow up requests to company to determine status of rollover. Finally gets information indicating that the company has ignored his request, transferred his funds to new provider. What is his recourse?

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Guest Therese

Why not just request the rollover again? What other sort of "recourse" are you looking for - did the failure to follow instructions cause a loss? If so was there a reason for the failure - for example the paperwork arrived too late or was incomplete? (Re the title of your question: a plan transferring to a new provider is not a 'rollover without consent' - the money presumably was not rolled out of the plan & a plan does not need participant consent to change providers.)

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Normally, I would agree with your statement that the participant's consent is not required when changing providers. However, as I said in my original post, this person was given the option of keeping his assets at the current provider, rolled from the plan into an IRA. When the plan assets were transferred, the amount transfered from one provider to the other included the amount that this participant specifically elected NOT to have rolled over to the new provider, by way of electing to keep the funds with the "old" provider in an IRA account. The issue is that his election was ignored. His money went to the new provider, despite the fact that he elected to leave it where it was. This, then, IMHO IS a rollover without consent.

It's not as simple as requesting the rollover again. In order for this participant to get where he was supposed to be in the first place, his assets will have to be transferred back from the new provider (and out of the plan) to the old, and rolled into an IRA.

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Guest Therese

I understand that it's frustrating to have the instructions ignored and if there was no flaw in the paperwork the fiduciaries should have followed instructions, but if there's no financial loss to the participant I still don't see what 'recourse' you're looking for other than to finally get the transaction done.

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Originally posted by RBeck

His money went to the new provider, despite the fact that he elected to leave it where it was.  This, then, IMHO IS a rollover without consent.

RBeck- this , by definition is NOT a rollover, simple, a change in provider as you stated earlier in your post- tantamount to just changing an account number.

Originally posted by RBeck

It's not as simple as requesting the rollover again.  In order for this participant to get where he was supposed to be in the first place, his assets will have to be transferred back from the new provider (and out of the plan)  to the old, and rolled into an IRA.

On the contrary- it IS as simple as requesting a rollover. The participant apparently already established an IRA with the prior provider… now all he/she needs to do is submit distribution paperwork to the plan, which should include direct rollover instructions- including the delivery instructions for the IRA. The IRA custodian/Trustee should be able to provide an acceptance letter to the plan, which generally includes a confirmation of the type of account established to receive the direct rollover

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Perhaps "rollover" is poor wording in this instance.

The participant did NOT previously establish an IRA with the provider where he wanted his money to stay. That was the point of him filling out the paperwork the way he did. The letter he received from his former employer (also the trustee) gave him two choices. 1) do nothing, let his account balance be transferred with the plan or 2) fill out paperwork to request that an IRA be set up at the original service provider and have his account be transferred out of the plan, and into an IRA at the 'old' provider.

The participant's request was received by the employer/trustee in December, the participant was told there was no problem with the paperwork, and that his instructions would be followed.

It's now February, and the participant was just notified that his account balance had been transferred to the new provider along with the rest of the plan's assets.

The fact that his former employer gave him the option he selected, verbally and in writing agreed to follow it, then chose to ignore it is the issue. I believe that when a fiduciary ignores a participant's explicit instructions and in fact acts to the contrary, there's a problem.

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Guest Therese

It seems more likely that they made a mistake than that they would have chosen to ignore the request. In 3 posts you have not mentioned any financial loss, so I assume there was none. Why not just have the error corrected and move on - people make mistakes. If there was in fact a financial loss I would expect the plan sponsor to make the participant whole, but I would not expect any more than that.

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I dont see what the "problem" is. The change of provider is not a rollover without consent because the assets are still in the same plan. The new provider can act on the particpant's instructions and roll over the account to the IRA designated by the particpant. While the participants instruction may not have been followed before the change of providers I dont see why the instructions cannot be effecutated now by the new provider. The failure to follow instructions before the change of provider does not create a liability to the participant.

mjb

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With the request being made in December, and it is now only the second week of February, I would say that they are still within a reasonable time period to act on the request. What does the plan administrator say about what is going on (we have only heard the result to date; not what they intend to do)? Some rollover requests take months to process.

What does the plan say? Some plans will only make distributions at certain points in time (e.g., at end of quarter or plan year).

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Guest Therese

Right - I understood that from your first post. But there is no apparent reason (at least none you've mentioned) that it could not now be rolled to wherever the participant wants it to be. This is not an unfixable or even a major problem. Just tell the plan to do the transaction now.

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RBeck:

His instructions are completely irrelevant to the money being moved to a new provider. The plan can move to a new provider without the participant's permission...period.

His instructions are to make a rollover. He is not instructing them not to move the money (he can't do that). Whether the rollover occurs before or after the transfer is not in the control of the participant. As long as the rollover occurs within a reasonable time, and follows the plan's procedures, nothing has been done wrong.

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I agree with Appleby. This is a "no harm, no foul" event. Get the money from the "new" provider to the "old" provider's IRA account.

There doesn't seem to be any "fiduciary breach" resulting in a "loss" to the participant. Paperwork wasn't done right or in a timely manner. Just get it fixed.

This has never happened to anybody else in the dc field.

Jim Geld

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The paperwork WAS done correctly, it WAS done timely. The participant's request was ignored. The letter from the plan sponsor gave specific instructions for a choice to roll the money over to an IRA BEFORE the plan's assets were transferred out. This is the choice the participant made. The plan sponsor did not follow the participant's explicit instructions, pursuant to an election the plan sponsor created.

How is the failure to carry out a participant's election choice a "no harm, no foul" issue?

The participant requested a distribution from the plan - he wanted his money rolled over to an IRA before the plan assets were transferred. The plan sponsor gave him that choice. The plan sponsor then failed to honor the participant's request for a distribution, even though there is valid, timely paperwork.

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What do you mean by "it didn't happen"? What DID happen is that the participant's money was moved, after the participant expressly elected that it NOT be moved.

Does it really matter if there is or is not a financial loss to the participant? The participants election instructions were not followed by the plan sponsor/fiduciary.

That's like saying "it's only wrong if you get caught".

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MGB, how can you say that the participant's instructions are completely irrelevant, when this entire incident was precipitated by the plan sponsor allowing the participant to choose not to move his money by electing the option of setting up an IRA at the provider before the money was moved? The plan sponsor gave the participant the option, then ignored it.

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The original question was what is the participant's recourse. The recourse is to get the transaction accomplished and make the participant whole. If you can't demonstrate that the participant lost something of value, then the only to do is get the transaction accomplished.

Maybe if you stated what you wanted in return for this oversight, someone could answer with a direct response to that.

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RBeck:

You and the participant can continue to waste time and emotional energy on feeling wronged, but I think you should catch on to the pretty clear and unifiorm message you are getting here. Unless there are some startling facts that you have not revealed, get on with requesting a distribution and put the money where the participant wants it now.

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What didn't happen, the participant's money didn't go where it was directed. OK!

Now what? To correct it((or to get it done in the first place), the participant now has to do something.

If there is a cost to get it accomplished, I only can imagine it would be borne by the plan sponsor. Other that that, I don't know what recompense would be appropriate.

Jim Geld

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So what you are all saying is:

1) Because there was no financial loss to the participant, it is irrelevant that the participant elected to take a distribution from the plan in the form of a direct rollover prior to the transfer of assets.

2) The plan sponsor can ignore participant elections, as long as no money is lost?

3) That this participant should just shut up, request and additional transfer, and move on.

...

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No Rbeck,

We are saying…think about this some more… when you do, bear in mind what MGB said earlier

Originally posted by MGB

With the request being made in December, and it is now only the second week of February, I would say that they are still within a reasonable time period to act on the request.  What does the plan administrator say about what is going on (we have only heard the result to date; not what they intend to do)?  Some rollover requests take months to process.

What does the plan say?  Some plans will only make distributions at certain points in time (e.g., at end of quarter or plan year).

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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I love to see non lawyers act like lawyers- but Rbeck- in order to obtain a remedy an aggreived party must have incurred a wrong. I am at a loss as to the wrong and the the adverse consequences of the wrong to the participant. My understanding of case law is that plan administrators have escaped liability for late distributions made up to a year after a request is made. The only failure seems to be to make a distribution prior to the change of 401(k) provider which can be fixed by making the rollover of the distribution. By the way what does the plan say about distributions or do only lawyers read those documents?

mjb

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Rbeck, I just read the entire thread and here is my take on it.

The former employee may have submitted documents for a rollover, but it looks like the movement of the entire plan occured before they got to your request. Surely, you must understand that planning to shift providers was probably weeks/months in development. This is, at worse, an administrative error and depending upon what the plan says about rollovers it may have been entirely correct. If this is the most onerous event in the former employee's life this past year he is indeed a lucky guy.

You have a huge burr in your saddle over this issue, and the anger you have vented here is a major waste of time. You have made no case of financial loss. Failure to act in a timely way when there are remedies to fix something means you have no legal issues. I agree with the prior comments of "no harm". This doesn't mean no inconvenience, just no financial harm.

I have some questions for the former employee. Did this person call to determine the status of his request? Did he talk with his former employer? Has the new provider agreed to process the request? Does the new provider have the paperwork on file from the original request?

A simple way to minimize the aggreviation is to follow up on instructions. Mistakes and processing delays while not common are far from rare at brokers, banks, mutual funds, insurance companies, etc.. Do you want jail time for the clerks? Direct your energy to solving this problem rather than complaining.

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