Forfeiture of residual vested balances

[Guest kan]

When I was with my former employer, they withheld part of my pay as an "automatic enrollment". It only came to about $10 or so, but I told them I didn't want to do that going forward and they stopped. I left my job and forgot about this money. Since then it had gone down in value to about 5 dollars or so. I called up looking for the money, but only to be told that the employer "forfeited" the amount to the forfeiture account as they do for any vested balances under $15. Is this legal? What recourse do I have? They said they thought it was just a residual balance that was left over due to a trading error or residual earnings.

[E as in ERISA]

Some will "forfeit" balances that are less than the cost of administering a distribution. For example, it might have cost $20 to process your $5 distribution, so the logic is that you wouldn't have received anything anyway.

[pmacduff]

I thought if a participant ever returned for a forfeited balance, regardless of the amount, that the participant is entitled to it and that the employer is required to restore the balance. If they had told you that a distribution would have been "eaten" up by distribution fees it may have made sense, but the response you received was incomplete and at best. Residual earnings to your account belong to you. I personally would probably pursue it just for principal reasons..........by calling the DOL and explaining exactly what you've written here. The DOL may tell you it's not worth pursuing because of the amount but I think you will get a better answer than your former employer gave you!

[2muchstress]

I think "forfeit" may have been the wrong term to use. It is possible that your balance was used to pay the fees of the plan.

That is money that you were entitled to and would have been non-forfeitable. But again, they may have told you that it was "forfeited" and meant something different.

However, the DOL has taken the position (informally) that a participant's account cannot be reduced to pay the fees associated with the distribution.

Since it was only $5 dollars, the hassle to recover the money would be much greater than the benefit you would receive.

[Brian Gallagher]

i would say you are indeed due the money, plus earnings(?) since they forfeited the money. just because they madre the mistake of assuming it was a trading eror or residual balance, doesn't mean you should get the short end of things.

however, did the plan try to contact you and fail, thus considering you (in the plan's eyes) a lost participant? then they may forfeit the money.

since the plan told you this (was it on a recorded line?) it is doubful you were "lost"

you could bring action against the plan via the DOL i guess, but you need to consider if it is worth it for ten bucks.

[Guest Jelly Phish]

I had this similar situation where a client wanted to automatically forfeit any residual balance of less than $20. I told them that there was no legal way to do this that I knew of, but they were adamant that this is the way they wanted to operate their plan. I advised them against this and they fired me. Good riddance, I say!!!

Anyway, IRC 411 provides for forfeitures of vested account balances in certain, rare, specific situations. Also, there is a de minimus rule of $20 for corrective distributions (if it costs more to process the check than the corrective distribution amount, you don't need to do the corrective distribution), but that doesn't allow the forfeiture of vested money. Also, I am wondering how a recordkeeping system can forfeit deferrals or QNEC money?

From a practical perspective, however, the DOL might want to hear about this.

[david rigby]

2muchstress is correct: use of the word "forfeit" is misleading.

Clearly, you were 100% vested in this acount.It appears that they "wiped out" your account, but it is not yet apparent why. Either it was due to the plan provisions that apply some processing fee against a distribution, or because they considered you a "lost participant". If the latter, you are no longer lost, and they should restore your account balance immediately. If the former, make sure that the plan permits such fees, not just an administrative application. (Of course, it is possible that both of the above situations apply.)

[Tom Poje]

Mr. Phish:

A slight revision to your statement

The amount has been raised to $50 for deliver of small benefits for corrective distributions under the EPCRS program. Again, that is for corrective distributions only, not the distributions talked about above.

And, if you overpaid someone, you no longer have to request return of amounts less than $100.

[Guest Jelly Phish]

Thanks Tom. Time for me to hit the books!!!!