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Terminated participants requested dist. Dist denied. Plan in arbitration


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I posted this in another thread and thought this is probably the correct placement for this topic.

A small SH401 is currently in arbitration. A former HR employee who had access to the plan was found to be an embezzler. Apparently this employee was setting up double accounts for a few participants in order to access them at a later time. One of these participants put in a distribution request in August and the distribution was never issued as the plan sponsor is of the opinion the participant may not be entitled to all the funds. The participant was never issued a written notice why the distribution was not processed. The claims procedure in the plan document addresses a plan administrator's decision to not provide participant claims. My question is what exposure, if any, does the administrator have for not providing written notification.

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"...put in for a distribution..." sounds like a claim for benefits. Does the plan have a claim procedure? Does the procedure describe how/when to respond?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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It does. The administrator must provide a claimant with written notification of the administrator's decision relating to a claim within a reasonable period of time(not more than 90 days) after the claim was filed. If special circumstances require an extension to process the claim (which in this case I think it would), the administrator may have an additional period of up to 90 days provided the Administrator provides the claimant with written notice of the extension prior to the termination of the initial 90 day period (which they did not provide the initial response).

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Is there a reason that the accounts can't be sorted and and the participant paid now? Nothing is going to happen unless the participant does something, and if they get paid now, I don't think they're going to file a complaint.

I'm curious about this statement: "A small SH401 is currently in arbitration." Is the plan itself in some kind of legal action or the company?

Ed Snyder

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Is there a reason that the accounts can't be sorted and and the participant paid now? Nothing is going to happen unless the participant does something, and if they get paid now, I don't think they're going to file a complaint.

I'm curious about this statement: "A small SH401 is currently in arbitration." Is the plan itself in some kind of legal action or the company?

That's what I am thinking that nothing will happen unless the participant initiates it and we have discussed a partial payment until the plan can verify that the participant is entitled to the full amount in his account. The PLAN just went to arbitration. The sponsor does not want to pay out a participant if they are not entitled to it due to a former employee possibly attempting to hide money in participant accounts in order to gain access to it at a later time.

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Is it safe to say that the plan sponsor, as the plan's fiduciary, is (a) wasting no time and (b) sparing no expense to verify the accuracy of the account balances? Seems to me that the burden of proving that the amount in any given account is not correct belongs entirely to the sponsor/plan administrator. The last thing the sponsor should be able to do is question whether the amount in someone's account actually belongs there (and, based on that assumption, declining to comply with withdrawal requests) without having first had the account balance reconstructed from payroll deductions and investment returns.

Also, is the embezzler so stupid and unimaginative as to have put the money into actual accounts with the intention of trying to access it later? Not even using the names of minor characters from Harry Potter or John le Carre novels?

It is, throughout, apparently being assumed here that this is not a conspiracy, where the account holders were in on it all for a cut of the stolen money. If the employee requesting the withdrawal is not personally under suspicion, how can the sponsor refuse to just release whatever is in the account?

Always check with your actuary first!

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Is it safe to say that the plan sponsor, as the plan's fiduciary, is (a) wasting no time and (b) sparing no expense to verify the accuracy of the account balances? Seems to me that the burden of proving that the amount in any given account is not correct belongs entirely to the sponsor/plan administrator. The last thing the sponsor should be able to do is question whether the amount in someone's account actually belongs there (and, based on that assumption, declining to comply with withdrawal requests) without having first had the account balance reconstructed from payroll deductions and investment returns.

Also, is the embezzler so stupid and unimaginative as to have put the money into actual accounts with the intention of trying to access it later? Not even using the names of minor characters from Harry Potter or John le Carre novels?

It is, throughout, apparently being assumed here that this is not a conspiracy, where the account holders were in on it all for a cut of the stolen money. If the employee requesting the withdrawal is not personally under suspicion, how can the sponsor refuse to just release whatever is in the account?

It's unknown whether the participant requesting the funds from the account in question (and there are at least two participants) were in cahoots with the employee who was stealing money. However, they never said to the plan sponsor that their deposits seem high compared to what was being taken out of their checks. So there is some suspicion. At the very least there is suspicion that the participants have a higher account balance than the should have whether or not through no fault of their own.

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  • 5 months later...

I'm wanting to revisit this situation....a former employee who has an account in question, is requesting his money.  Two notices have been sent to participants whose accounts are being reviewed and the Plan Sponsor has been spending quite a bit of time creating spreadsheets and putting together payroll, W-2's, financial statements, etc. to determine what transpired.   The question is can the plan sponsor continue to send the notice every 90 days until the issue is resolved and the accounts can be certified?

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5 minutes ago, kwalified said:

I'm wanting to revisit this situation....a former employee who has an account in question, is requesting his money.  Two notices have been sent to participants whose accounts are being reviewed and the Plan Sponsor has been spending quite a bit of time creating spreadsheets and putting together payroll, W-2's, financial statements, etc. to determine what transpired.   The question is can the plan sponsor continue to send the notice every 90 days until the issue is resolved and the accounts can be certified?

Sorry, but I cannot imagine that it could possibly take anything close to a year to have resolved this if the sponsor were making a diligent (which encompasses the phrase "money is no object") effort to establish what the account balances should be.  The issues date back at least to August 2016, when claims that had been submitted were put on hold.  The sponsor should have brought in one of the big national accounting or consulting firms to work on solving the problem.  It sounds as though the task is more than the sponsor can handle without expert professional help.  So expert professional help is necessary.  If that's too expensive, then the sponsor should just throw in the towel and pay out the accounts requested on an as is basis.  Embezzlers don't generally travel in packs, so absent something clear, it must be assumed that the participants are all entirely innocent.  Remember, the participants are not obliged to search for and report discrepancies in their favor.  Who was responsible for handling recordkeeping for the plan?

I am still trying to figure out how anything like this could be subject to arbitration in the first place.  No arbitrator would attempt to recalculate the true account balances.  What issue would there be that would be arbitrable?

Always check with your actuary first!

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Does the plan administrator not get annual reports from its TPA?  Or record keeper?  They should.  And on one of the reports should be a YTD amount of deferrals & match & SH.  The deferrals should be easy to check:  Add up the deferrals on the W2's for the past how many ever years and compare it to the deposits.  Unless this goes back many years, or there have been several record keeper changes, it shouldn't be that hard for just one participant.

(Heck, the participant might even be able to check the deferrals himself!)

QKA, QPA, CPC, ERPA

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

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35 minutes ago, BG5150 said:

Does the plan administrator not get annual reports from its TPA?  Or record keeper?  They should.  And on one of the reports should be a YTD amount of deferrals & match & SH.  The deferrals should be easy to check:  Add up the deferrals on the W2's for the past how many ever years and compare it to the deposits.  Unless this goes back many years, or there have been several record keeper changes, it shouldn't be that hard for just one participant.

(Heck, the participant might even be able to check the deferrals himself!)

And if the participant does and asserts that the balance is correct, would the account then be promptly paid out?  Plus, it is not just one participant - there have been a number of claims that are not being fulfilled.

Always check with your actuary first!

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