Restricted EE with no Repay Agreement

[Guest melodik]

Right before we took over this plan, a restricted employee took $600k+ lump sum distribution. The prior actuary did not advise the plan administrator that a secured repayment agreement was required before the RE could be paid. They now have another terminated RE wanting a lump sum, and we are telling them he has to secure a bond/escrow/letter of credit. When asked why they have to have it with the one and not the other, we informed them that they should also have had one in place when the last RE took a lump sum. They now want to know if they have any recourse with the prior actuary. Has anyone else encountered a problem like this? What did you do, if anything?

[AndyH]

Since you've had no responses I thought I'd add my two cents.

You understand of course that this is the responsibility of the plan administrator, not the prior actuary?

And a second point is that you should be sure that the first payment was in fact restricted. There seems to lots of room for interpretation about how recent the data must be to make that calculation. I've seen commentary, for example, about it being acceptable to use the most recently filed Schedule B. That could mean the data is quite old, so it is not impossible that it is restricted now but was not before based upon the data used in the prior calculation.

[Everett Moreland]

If the first payment was not allowed by the plan document, you might consider whether the plan needs to correct it under Revenue Procedure 2003-44.