Earnings on a Delayed Distribution

[Guest Bud]

A participant's distribution form was lost for a while. We found it and are processing the participant's claim. This is taking about 6 months more than our usual time, but still within the 60-day provision of the plan document (401(a)(14) rule). The participant feels she is entitled to lost earnings. Does she have a valid claim because it was beyond our normal processing time or not because it is within 60 days of the later of normal retirement, 10 years of service or termination of service?

If we want to pay her lost earnings anyway, can we make an additional contribution to the plan that will be treated as earnings only for this participant or will we be violating the plan's allocation provisions by applying it only to the participant?

Thanks.

[Guest b2kates]

Be very careful, in order for the "additional contribution" to not count against the 415 limit, you are effectively admitting to a breach of fiduciary duty. Not a good practice to admit.

Brett

[Kirk Maldonado]

Are you sure that the investments did not actually go down in value (or at least stay the same) during the interim?

[Guest Bud]

Kirk: The investments did go down, which is the participant's point. Her position is that had there not been delay, her distribution would have been bigger.

b2kates: Can I infer from your comment that if the participant satisfies 415 with the additional contribution, we don't have to admit to a fiduciary breach?

The earnings are small (under $5,000). It is just a waste of company time for a claim review and appeal review or a response to a suit.

[Guest b2kates]

Are you prepared to give everybody who "lost investment opportunity" the same additional contribution. It could open the plan to a claim of discrimination.

The bank Trustee that I left, would not make such a payment without specific direction from the plan sponsor and an indemnity from the sponsor.

In addition as a practical matter if the amount is too small, is it not also too small for the participant to hire an attorney to sue?

[mbozek]

Don't u need to look at the terms of the plan? Plans usually provide that a participant is entitled to the account balance as of the date of distribution. ERISA requires that the accrued benefit be paid. Cts have not supported a right to additonal interest unless the plan deliberately delays distribution to benefit other participants. Argument that interest should be paid if delay causes decline in value is meritless because account balance could also have gone up during the delay. Plan administrator is not a guarantor against change in economic climate. You can check case law to see if this claim has merit but simpliest solution would be for employer to pay nominal sum to participant out of general corporate account, not plan, and get general release.