Are New Distribution Forms Required For A Supplemental Distribution?

[Guest Powers]

Due to a recordkeeping error, there were 3 participants who were underpaid their defined contribution benefits in the first quarter of the plan year. I was going to draft a letter to the client to explain the error and request that she obtain new distribution forms for the three participants since it has been over 90 days, when I spoke to a colleague that said “if a supplemental distribution is required due to a error in calculation, they can be paid out without obtaining new distribution forms”. She could not provide me a site. Has anyone heard of this? If so, can you direct me to a site? :confused: :confused:

[KJohnson]

I am not sure that it gets you there, but your 90 day rule is tied to the annuity starting date. Section 1.401(a)(20) Q&A 10(B)(3) provides that a payment will not be considered to have been made after the annuity starting date because "actual payment is reasonably delayed for calulation of the benefit amount if all payments are actually made"

Thus, I guess if you determine that your supplemental payment is actually being made pursuant to a "reasonable delay" for calculation of the benefit and all payments are made, you would have an argument that you don't need new forms. There might be something else that I am not aware of. However, I always err on the side of sending too much in the way of QJSA disclosure rather than too little.

[david rigby]

You might also be able to use that argument if the total is less than the involuntary distribution limit in the Plan.

Even if the total exceeds that limit, you might also be able to do the distribution without new form(s) if the secondary amount is trivial- say $10. But I don't know where you draw the line.

No matter what the other issues, if there is a QDRO involved, be careful.

When in doubt, err on the side of caution.

[Appleby]

Usually, if the date has been less than six-months since you received the last distribution request, you may use the same document to process the residual If it has been more than six-months you must obtain new documentation. This is to ensure compliance with the Internal Revenue Code, which requires that you provide a withholding notice to the account holder no more than 6 months preceding each distribution, if the participant is taking distributions less frequently than quarterly.

I understand that the 90-day notice must be provided for eligible rollover distributions, but this is a residual- which means that the proper notification was already provided to the employee. However, it could be argued too that the IRC § 402(f) requirements are being violated. Any thought on sending the payment , along with a copy of the IRC § 402(f) notice- requesting a confirmation of receipt?