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judgement against multiemployer plan


Guest vinmeister

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Guest vinmeister

A good friend of mine recently won a judgement against a multi employer retirement plan. The credits, amount and time are not in dispute. The question is weather the benefits in arrears by the plan are subject to interest penalties during the time they were not paid to the plan participant (according to ERISA). Also the lump sum payment will bring him into a tax bracket that would not have normally been applied. ie: if paid annually the tax bracket would have been 15% paid in a lump sum he would be in the 28% or higher bracket. Who is liable for the increased burden?

Since the payments were not paid in a timely manner and interest accrued on them benefitrf the coffers of the plan , would they constitute a prohibited transaction and would an individual fiduciary be liable or would the 20% penalty be applicable and against whom?

Thanks

Vinmeister

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Mistakes in calculations and late payments are not PTs.

As to the lump sum, if it is paid from the plan the statutory withholding is 20%. The effective take rate the recipient pays will depend on AGI and deductions/credits eligible for when filing their income tax.

JanetM CPA, MBA

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A good friend of mine recently won a judgement against a multi employer retirement plan. The credits, amount and time are not in dispute. The question is weather the benefits in arrears by the plan are subject to interest penalties during the time they were not paid to the plan participant (according to ERISA). Also the lump sum payment will bring him into a tax bracket that would not have normally been applied. ie: if paid annually the tax bracket would have been 15% paid in a lump sum he would be in the 28% or higher bracket. Who is liable for the increased burden?

Since the payments were not paid in a timely manner and interest accrued on them benefitrf the coffers of the plan , would they constitute a prohibited transaction and would an individual fiduciary be liable or would the 20% penalty be applicable and against whom?

Thanks

Vinmeister

I dont understand what you are asking. The amount of the judgment will be determined by a court order.

Since ERISA is a law of equity it will be up to the court to determine if interest is due. As for taxation if the judgment requires the plan to pay the participant, the distribution can be rolled over as a benefit paid from the plan. If the participant chooses not to rollover the distribution it is the participant who will pay the taxes due.

I dont see a PT issue if there was a dispute over what was the benefit amount. Plan fiduciaries have a duty to protect plan assets if they believe that a participant is not entitiled to a $ amount under the terms of the plan. If a court orders the plan to pay the additional benefits then the plan must obey the court order but the failure to pay is not a breach of fiduciary duty.

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Guest vinmeister
A good friend of mine recently won a judgement against a multi employer retirement plan. The credits, amount and time are not in dispute. The question is weather the benefits in arrears by the plan are subject to interest penalties during the time they were not paid to the plan participant (according to ERISA). Also the lump sum payment will bring him into a tax bracket that would not have normally been applied. ie: if paid annually the tax bracket would have been 15% paid in a lump sum he would be in the 28% or higher bracket. Who is liable for the increased burden?

Since the payments were not paid in a timely manner and interest accrued on them benefitrf the coffers of the plan , would they constitute a prohibited transaction and would an individual fiduciary be liable or would the 20% penalty be applicable and against whom?

Thanks

Vinmeister

I dont understand what you are asking. The amount of the judgment will be determined by a court order.

Since ERISA is a law of equity it will be up to the court to determine if interest is due. As for taxation if the judgment requires the plan to pay the participant, the distribution can be rolled over as a benefit paid from the plan. If the participant chooses not to rollover the distribution it is the participant who will pay the taxes due.

I dont see a PT issue if there was a dispute over what was the benefit amount. Plan fiduciaries have a duty to protect plan assets if they believe that a participant is not entitiled to a $ amount under the terms of the plan. If a court orders the plan to pay the additional benefits then the plan must obey the court order but the failure to pay is not a breach of fiduciary duty.

Perhaps it was wishfull thinking by me for my friend. I looked up the ERISA section 29 civil judgements area and it said that interest would be applied to payments in arrears to the plan if as you said Erisa was a law of equity I would have thought it would be there (perhaps its implied but apparently in the eyes of the law implied doesn't cut it)Do you know if it is feasable for the proposed stipulation and settlement agreement to be annotated to reflect interest due?Maybe adjustment for tax?

Insofar as the failure to pay not being a PT issue I failed to mention that this was a class action suit and treated that way I guess I was hoping on my freinds behalf that being a class could be construed as an organized attempt to deny (defraud?) the class of its deserved benefits. Oftentimes in this situation with these people anyone who dares to dissagree with the administrator of the plan is treated as an adversary and cooperation ceases.

Thanks again

Vinmeister

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