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Employer Stalling on my Lump Sum Distrubution HELP!


Guest mannmiller
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Guest mannmiller

About 18 months ago, the company I worked for at the time was acquired or bought out by another. I now work for a different employer with a new 401 plan.

The old plan has not been terminated yet but since I am no longer employed with the company shouldn't I be allowed to take a lump sum distribution? They have the ERISA compliance department looking at this for me. I can't figure out what the hold up is - I am no longer an employee under the old plan!!

Any help would be appreciated!

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The provisions of the prior plan will determine when a terminated participant is entitled to a distribution. A plan is not required to make benefits immediately available. You should review your copy of the Summary Plan Description for the specific details of the distribution options.

...but then again, What Do I Know?

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Guest b2kates

Suggest you review the claims procedure for the plan in the summary plan description.

Formally put in a request and require a formal response. You are going to be limited should you need to sue to having demonstrated that you pursued the administrative claims process.

If you wish to discuss off line drop me an email.

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Guest mannmiller

Thank you both for your responses.

Could you tell me how I might go about getting a copy of the summary plan description? Is this something I have to get from my HR dept or sponsor (who is the feet dragger) or can I request this directly from the investment company?

Also - isn't there some law that prevents an employer from delaying the termination of a plan indefinitely? Is there any advantage for them in doing this? I just can't see how this hasn't been accomplished in 18 months time! I have been told there are high dollar investments in this plan, would this be a reason for the delay?

Thanks Again!

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Each situation is different, but it is not unusual for a plan to take 18 months to be terminated, and sometimes payments are delayed until the completion of the termination. Here's a possible schedule:

1. 2 - 3 months - get the plan ready for IRS filing (sometimes the plan will be filed with the IRS for review)

2. 10-14 months before the IRS responds

3. 1 to 2 months to resolve issues with IRS

4. 2 to 3 months to communicate with participants and process payments

Each of these steps can take more or less time.

Notwithstanding the fact that some plan terminations may take a long time, it is something you should look into. At the least you'll add some pressure on the persons handling the termination and your payment to move it along - sometimes this sort of thing gets put on the back burner. Or, you may find that there are problems. If you find a problem, or if you are stonewalled on your inquiries, I would call the Department of Labor, the investment company, the recordkeeper, the new owners and everyone else who had anything to do with it. I'd also call my friends who also have accounts to share information.

Also, so far as getting the SPD, the best bet is the company. Call and follow up with a letter. If you don't get a response, contact the Department of Labor.

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Guest b2kates

I agree with locust,

any letter you send to plan sponsor send certified mail. There are significant penalty exposure from DOL for not providing a summary plan description timely.

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Guest Boilerburm1

I don't disagree with any of the posts previously submitted. . . . BUT - remember that you are a participant in a retirement plan. It is possible for the plan's language to read such that you are not entitled to a distribution until retirement age. Too many participants think of these plans as just another investment account with similar portability.

This is why the recommendation is that you get a copy of the SPD or plan document. The withdrawal provisions will be spelled out for you there. You indicate that the plan has not been terminated, so you are subject to the normal withdrawal provisions for terminated participants. If, in fact, you have been entitled to distribution upon termination of service, and the administration of that distribution has been unusually slow, you then can get upset about the employer "dragging their feet".

Good luck.

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I assume that the plan at issue is a 401(k) plan and that, like most, provides for distribution upon termination of employment.

If so, I don't understand how the plan administrator can delay a distribution due under plan terms upon termination of employment merely because the plan sponsor has decided to terminate the plan. Seems to me (IMHO) that the participant would retain the right to receive the distribution notwithstanding a pending plan termination.

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Waiting for a plan termination may be beneficial...100% vested, baby!

To the original poster:

Do you have any friends still at the old company? If so, they may be able to get you a copy of the Summary Plan Description easier than you can. (You mean you didn't keep yours? ;) )

Also, did you fill out any distribution paperwork? Or did you just request the distribution.

You may be able to call the investment company where your investments are held--there should be an 800 number on your statement. They may be able to tell you the terms of the plan regarding distribution.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Guest mannmiller

Thank you all for your input - it has been very helpful.

I was told (18 months ago) right after the acquisition that we would all be 100% vested in the plan, no matter how many years of service.

I am no longer working for the company - nobody is at it was acquired by a larger company.

Thanks for the input on the stages of the termination, I see it is a lot more complicated and time consuming than I believed - BUT - I still don't understand how I can't access the funds since I am not an active employee and that is one of the criteria where you can access the funds.

I have completed the distribution paperwork, the plan sponsor is holding it until this has been approved.

I called today and found out the following from the ERISA compliance dept:

If the acqusision was an asset acqusition, then I should be fully vested and the distribution should be processed immediately. It it was a stock acquisition, then I will have to wait until the plan officially terminates.

I am now waiting to hear from someone who can tell me what type of acqusition this was!

Thanks again everyone!

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Guest Pensions in Paradise

manmiller - something is not right here. Since you have terminated employment, the type of acquisition has no bearing on the timing your distribution. You should do as the others have suggested, write a letter to the company asking for a copy of the SPD and a written explanation as to the delay in your distribution.

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The distinction between a stock acquisition and an asset acquisition is that with the former an employee doesn't terminate employment just because of the acquisition - only if he or she actually loses his or her job. [mm - I wasn't sure from your posts if you actually lost your job.]

If it is a stock acquistion, an employee who has not lost his or her job can get paid only if the plan is terminated, and in that case payments would not be made until the plan sponsor was ready, generally after the IRS reviews and approves the terminatioin.

Also, some plan sponsors freeze all benefit payments, even those for terminated employees, when a plan is terminated. There are administrative and fiduciary justifications for this.

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For my education, what are the administrative and fiduciary justifications that would allow a plan administrator to delay distributions due under plan terms because the plan is being terminated? I have approached this issue in the past as telling the plan administrator to make termination of employment distributions due under the plan terms even in light of a pending plan termination, in part because I could not come up with a theory that would allow a delay in the distribution.

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The justifications are that

1. Termination is an extraordinary plan event that is sometimes related to an extraordinary event for the plan sponsor (such as a takeover) that takes the plan out of its regular administrative routine. You may have numerous (or all) employees who are terminating employment. Everyone will be 100% vested and entitled to payment. Investments have to be liquidated; final account balances have to be determined. All of this leads to confusion and the possibility of making mistakes. To keep things under control (and to state in a fiduciary context, to ensure that everyone gets what he or she is entitled to, no more and no less), the fiduciary makes a decision to temporarily suspend payments for everyone until assets are liquidated, data is collected, and everything is right.

2. A significant issue in the IRS review is vesting and allocation of contributions (partial termination, discontinuance of contributions, top heavy). It is possible that the IRS would require a reallocation of contributions or forfeitures as a result of its review. Payments are delayed in the event that such a reallocation would be required. Suppose everyone terminated employment so that everyone was paid before the IRS finished it review, and then the IRS said the allocations were all wrong? Once payments are made, they can't be taken back.

In the fiduciary context, payments are suspended until the IRS confirms that the allocations are correct.

It comes down to a decision that a suspension is prudent in order to get everything right, which can be confirmed by IRS approval.

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L: I have never seen any authority from the IRS/ dol that allows a plan to suspend payments to terminated employees while the plan is in the process of being terminated (which in some cases can extend over several years). A refusal to pay benefits on account of any event permitted in the plan is a reason for disqualification for failure to administer the plan in accordance with its terms. Under your logic a plan could refuse to pay MRD during termination because of the risk of overpayment. I dont think a plan fid can refuse to pay distributions to any participant who is entitled to receive payment on account of an event specificed in the plan, e.g., termination, retirement, etc because ERISA requires that the fiduciary administer the plan in accordance with its terms. There is no more possibility of making mistakes while the termination is being processed than at any other time.

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To add to LOCUST's list, the IRS has been known to disagree with a plan's past ADP/ACP testing and required fixes which disrupted anticipated participant distributions.

While the fix(es) are less of of problem for NHCEs, if RTK had ever been a HCE, RTK's payment amount(s) & distribution codes could be difficult to define.

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The issue seems to be not that " the IRS has been known to disagree with a plan's past ADP/ACP testing and required fixes which disrupted anticipated participant distributions" but more whether the distributions can be suspended or delayed especially for an unspecified time. Disrupted versus suspended.

Note that the old plan has NOT been terminated. It is not clear whether it even will be. That being the case I do not see how delays based on plan termination could be used as an excuse.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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mjb - I don't know that the IRS or the DOL have said anything on the issue one way or the other. I think it is a fiduciary decision. There are many events that occur that require the fiduciary to decide what to do that may not be covered by the 4 corners of the plan documents. For example, suppose that assets are missing or have been overvalued or have had significant reductions in value, or data is lost or ambiguous or wrong, or contributions haven't been made - these are instances where it might be prudent to delay payments until everything is resolved. I think a legitimate argument can be made that it is within a fiduciary's discretion to temporarily suspend payments when a plan is terminated because it protects the interests of all plan participants not just those who have terminated employment.

Gburns - I was addressing RTK's question of suspensions when a plan is terminated.

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L: you have not presented any evidence or authority under ERISA which permits a plan fid to violate the express terms of the plan. If the plan must make MRD to participants while it is in the process of termination then it must also make distributions on account of other plan events such as severance of employment which are permitted under the plan. Withholding payments to terminated participants during a termination (which usually takes more than a year) will expose the plan fiduciary to personal liability for losses if the terminated participants account balances decline before they are distributed because of a delay in payment caused by the action of the plan fid. in refusing ot make distributions. Having to make additional allocations to cure nondiscrimination/excess benefits paid is a lesser cost then having to pay participants for investment losses. Client needs to discuss this issue with counsel. Plan cant protect the rights of some participants by ignoring the rights of other participants under the plan.

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mjb - It is not as cut and dry as you say. There has to be some flexibility - that's part of the fiduciary's role to decide what is best for the plan. You can't always follow the terms of the plan exactly. An extreme example (for illustration): suppose a plan has real estate that is grossly overvalued, either because of a reduction in value because of some event or because of negligence by the trustee; a participant entitled to payment says pay me based on the full value - I think the plan administrator would be justified in saying "whoa," let's determine the actual value of your account before we pay you, it's going to take some time, but I want to be sure you get only what you're entitled to get (no more and no less). There may be a duty to follow the payment rules, but there is also a duty to protect plan assets for the remaining participants, and the latter would prevail in this situation.

There's not going to be evidence or authority for whether a fiduciary act of this sort - one where a fiduciary has to exercise discretion to delay payments for the benefit of all participants - except in egregious situations. Can you give me "evidence or authority" for the proposition that the decision of a fiduciary to delay payment for reasons the fiduciary reasonably thinks are legitimate (the prudence standard) results in fiduciary liability?

With that said, I don't think there is anything wrong with the advice to pay out, assuming there is no compelling reason to think that the payment amounts are wrong.

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Bullseye for RTK and dittos to mjb. To my knowledge, normal payments must be paid when normally due. Only payments that become due on account of the termination can be held pending the termination.

I think this is commonly misinterpreted and perhaps that is what is happening here to the poster.

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L: The answer to your dilemma is that the participant should receive all of the other assets in the plan outside of the RE and be given an amount representing a conservative value of his interest on the date of termination (e.g., 50%). When the asset is valued he would then be paid any additional amount in excess of what he received. The need for an appriasal cannot be used to preclude the participant's right to a distribution of his remaining interest in the plan.

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mjb - Wouldn't the plan document say that the participant is entitled to his entire account - where in the plan does it say that the plan administrator may withhold part of the payment until the appraisal comes in? Your point is that the plan literally requires payment (usually "as soon as practicable") after termination of employment, but your solution to my scenario shows that the literal terms of the plan can't always be followed.

mjb and HarryO - I disagree. Sometimes following the rules of the plan exactly can cause more trouble than adjusting it to fit circumstances. This is a dangerous sounding statement, but that's the fiduciary's role that is judged by its prudence.

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