Federal Tax Withholding

[Dougsbpc]

I'm sure someone has had problems with this:

Participant terminates employment and elects lump sum. The plan holds all assets in a brokerage account. We as administrator instruct the trustee (small business owner) to cut one check to the participant and the other to the bank the check is drawn on (the bank of the brokerage). We also instruct the trustee to send the withholding check with an 8109 coupon to the bank the check is drawn on.

Result: the bank sends the check back and has no intention of making the tax deposit.

I have told clients to set up a checking account in the name of the plan at their local bank and have the brokerage send the withholding check to their local bank for deposit. This works but clients are reluctant to take the time to establish the checking account.

I'm thinking about simply instructing the client (trustee) to have the brokerage make the withholding check payable to the company, have the company deposit it in the company account and then have the company submit the withholding with the 8109 coupon. I know, I know....plan assets are never to revert back to the employer but I contend that once a participant terminates employment and is paid his/her benefit, they are no longer a participant. This would solve many problems.

Does anyone agree or disagree with this approach?

Thank you.

[Lynn Campbell]

I do this routinely and see no alternative, given that the client has no checking account for the plan...