transfer of assets

[Guest Smitty848]

A plan sponsor/trustee has decided to change 401(k) providers. The PS/T sends letters to all participants, including former employees with remaining account balances.

Letter says 1) accounts under $5,000 will be cashed out.

2) accounts over $5,000 have two choices - to do nothing and have money transferred with the rest of the plan, or 2) to fill out the appropriate paperwork and have an IRA rollover account set up with the current provider.

Former EE/Participant fills out paperwork for choice #2 - wants to have his funds stay with current provider in an IRA account.

PS/T sends notification to former EE/participant, stating that funds have been rolled over to new provider. It appears that the PS/T ignored the election made by this particular participant.

Aside from the annoyance factor (having to undo what was done), is there a misappropriation of funds issue or some other fiduciary breach issue here?

[Guest b2kates]

I do not understand the concern.

Is the plan being terminated or is just a service provider being replaced?

What is the authority for distribution if there is only a transfer to a new investment vehicle, without plan termination.

[mbozek]

Pardon a dumb question but why is the change of providers an event which allows a distribution from a 401(k) plan. I though distribions could only be made after attianing 59 1/2, death disability, termination or hardship.

[Guest Smitty848]

termination of employment is a distributable event, right? The former ee is only a participant to the extent that there is still an account balance in the plan - didn't take a distribution at termination (balance over $5,000) - but can consent to a distribution at any time.

Would it be considered a failure to make a distribution on the part of the plan sponsor/trustee, if the former ee/participant elected to have the account balance rolled from the plan to an IRA prior to the time the plan's assets were transferred, and that distribution didn't happen because the former ee/participants assets were transferred instead of put into an IRA account at the current provider?

[Guest lislee]

You need to correct to the participant's election as soon as possible. Give him the greater of his account balance today or his account balance at the time of the transfer plus interest at an appropriate rate of return, thereby making the participant whole.

If you don't correct, you haven't operated the plan according to its terms.

[JanetM]

Why do you say the PS ignored the direction? Could it be the forms arrived too late and the assets were already frozen for the transfer?

Is the participant worse off ? Why not just send in new election forms and get on with life?

[Guest Smitty848]

Because the PS DID ignore the election - forms were received in good order within the deadline specified by the PS.

That's pretty much the solution I came up with. However, there is a loss in the account, so the PS will have to make up for that and pay any fees incurred by the participant to get the transfer right. This participant wants his pound of flesh to make up for the annoyance factor.

[mbozek]

Who has agreed to pay for this loss? The ER, the Plan admin? I dont see a 2 month delay in paying the distributions as being actionable-anyway check the plan document.

[JanetM]

Would the participant like to share with a PS's what he/she would have invested in to not have incurred a loss or fees?

As PS of 6 DC plans (and 8 DB plans) I am really tired of particpants whiny attitudes that the PS is out to get them or make them suffer. Or that they deserve a pound of flesh!

[Guest Smitty848]

well, mbozek, maybe YOU don't see the 2 month delay as a problem, but this participant does.

The plan sponsor made it clear in writing that if the election forms were received before December 15, the transfer would take place by Dec. 31. This participant sent his forms in well before the 12/15 deadline, called to be sure the forms were received, was told verbally and by email that they were, and expected that his account would be transferred to an IRA rollover account at the current provider by 12/31. Failure on the part of the plan sponsor to carry out its own directive is an issue, is it not?

From a practical standpoint, if he suffered no loss, it's a no harm no foul issue, and all this participant has to do is request that his assets be transferred back from the new provider to the old where he wanted them in the first place.

JanetM, I appreciate your cynicism. This plan sponsor has a history of not making timely deposits of salary deferrals, and a failure to make deposits at all on 2 occasions. Loan repayments are withheld but not credited to participant accounts, so if the participant is a bit paranoid, he has reason to be so.

[JanetM]

If the PS has history of shoddy practices I would report to DOL. The participant has the right to complain. But is it complaining based on solid evidence or is it based on isolated episodes?

If PS is not operating plan properly they should be reported. But my question to you is this - who is record keeper? Is PS trying to get by cheap and having some noname payroll service to record keeping as afterthought or is record keeping done in house? Is the record keeper is reputable and knowedgeable?

PS - does this plan require an audit?

[MGB]

Smitty,

You may want to review the following thread. You and RBeck seem to have the same client (or clients of the same employer):

http://benefitslink.com/boards/index.php?showtopic=18477

Same conclusion in that thread. There hasn't been any foul here. The issue isn't that there was no loss...the issue is that a rollover request is a separate and distinct issue from transfer of plan assets. The delay in rollover must be viewed on its own and has nothing to do with their transfer to new asset managers, no matter what the paperwork from the plan administrator implied.

[Guest Smitty848]

MGB - I agree with you. there's a distinct difference between a real wrong and a perceived wrong.

JanetM - it's not quite clear whether this plan sponsor is shoddy all the way around or if these are isolated incidents. I suppose that could be for the DOL to decide.

Maybe the satisfaction for this participant would be for him to call the DOL, but in the absence of hard evidence of deliberate violations on the part of the sponsor, I would hate to have an audit instigated just so that a participant can get his pound of flesh.

[mbozek]

S: Could u explain what is the pound of flesh that the participant is seeking and under what provision of ERISA is he/she entitled to such retribution.

[Guest Smitty848]

mbozek - I don't think the participant really gives a hang about the appropriate section of ERISA - he's just hopping mad that his former employer has inconvenienced him in this manner. He claims the plan sponsor has failed to follow the terms of the plan. Through what gymnastics he has concluded this, I do not know.

The relationship between the participant and his former employer has never been nor is it now, a good one. Mutual distaste, mutual distrust - he just wants to see his former employer suffer.

It's an inconvenience, and an annoyance to him to have to make a second request to get his transfer of assets done properly, but as I said earlier,

From a practical standpoint, if he suffered no loss, it's a no harm no foul issue, and all this participant has to do is request that his assets be transferred back from the new provider to the old where he wanted them in the first place.

[mbozek]

He can be as mad as he wants but that is not going result in any recovery from the plan because there is no recovery for pain and suffering under ERISA. I think this discussion has reached its end.

[Guest Smitty848]

Thank you, mbozek, for pronouncing this discussion over. Perhaps we should check with you before continuing other discussions as well?

[Mike Preston]

In general, I think that would be a good idea. Seems so in this case, anyway.