Possible forged spouse signature

[Guest Kriso]

I have a former employee who wants to take a cash distribution. We live in a community property state which requires the spouse to sign the distribution form. Notary is NOT required. I have reason to believe that the participant is going to forge is wife's signature as I know he is getting divorced (small town!!).

What responsibility do I have, as administrator, to the wife? Do I need to verify she signed? Inform the trustee/employer? The trustee also signed off on the distribution form.

[Blinky the 3-eyed Fish]

I have never heard of the fact that it is a community property state altering what consent is needed, and the consent requires no notary? Is the balance over $5K? Are annuities an option? Please explain.

[david rigby]

Asusming you are the plan sponsor, your duty is to the plan, and to ensure that the day-to-day administrative functions are performed according to the terms of the plan, and the requirements of the law. I'm not an attorney, but it seems that if you have reasonable expectation that a participant may commit fraud, it is appropriate that the plan sponsor "do the right thing". The plan's ERISA counsel will guide you.

[QDROphile]

The plan sponsor has nothing to do with day to day administration of the plan and any plan that is designed to have the plan sponsor cover that function is seriously flawed. Sorry to be off point, but this problem and misconception is so widespread that it must be confronted wherever it shows itself.

The plan administrator is almost certainly a fiduciary, and as fiduciary has the obligation to operate the plan in accordance with its terms. It does not matter that the plan could have been written without spouse consent to distributions. If the plan terms require consent and the fiduciary has reasonable suspicion that the consent of the spouse hase not been obtained, the fiduciary must take reasonable actions to assure compliance with plan terms. That may require extraordinary measures, such as requiring direct contact with the spouse or use of a notary. The adminstrator should document the issues and actions so the administrator has a full record of the basis for the extraordinary requirements that are being imposed on the participant.

[TCWalker]

Yes, but - In some cases the employer, not to mention small employer-owners who entitled themselves as plan administrators, will be deemed to be a plan fiduciary under the functional definition and as such will have the duty to monitor those fiduciaries delegated the day to day plan responsibilities. The duty to monitor could be interpreted as requiring the employer-owner to know what is happening and make the appropriate inquiries to protect the plan (participants).

[QDROphile]

Shame on them if they set themselves up to be fiduciaries under the functional definiton. That can be avoided, though possibly not by a sole proprietor.

[TCWalker]

Ha, shame or sham, take your pick - have your read some of the opinions from the bench in the Enron case? Seems to me that court expresses the opinion if you exercise the power to appoint a fiduciary, you are a fiduciary. That doesn't leave many non-fiduciary stalls back at the ranch.

[QDROphile]

It may be the future or just bad facts making for bad decisions, but the recent ENRON decison is out of line with the law and the DOL's position is out of line with the law and other positions that the DOL has taken (although the DOL is prone to find everyone to be a fiduciary). We have to wait and see on ENRON. Failure to dismiss does not mean it won't work out right eventually.

First, the company does not have to be the person who designates the fiduciary, so it does not have to be a fiduciary at all. Second, the fiduciary who designates the fiduciary is responsible only for that limited function. The designation of the fiduciary must be reasonable (it is not reasonable to designate ENRON scum to the post). The monitoring of the activities of the designated fiduciary is only for the purpose of assuring that the origianl designation continues to be a reasonable designation. It should not make the designator responsible for any particular thing the designated fiduciary does.

[TCWalker]

Hey QDROphile, I wouldn't say the pre-Enron cases have been black or white either with respect to protecting Boards/plan sponsors from the application of ERISA's fiduciary standards on the theory they're pure 'settlors' and the only duty was to assure their fiduciary designation was reasonable. But I'll agree with you, historically consistent conclusions in the ENRON litigation might be too much to expect. Still, when that settlor also exercises occasional control and responsibility for matters pertaining to plan administration I think we're back to a functional test.

[QDROphile]

I don't think we disagree in this uncertain area. What I am saying is that thoughtful plan documents and appropriate discipline in observing formal arrangements can make a big difference in liability exposure in most cases. But naming the employer as plan administrator or saying that the employer runs the plan wipes out most potential for effectively allocating risk and responsibility. I prefer not to surrender to chaos at the beginning of the process.

[Guest oxdougw]

Wouldn't the QDRO policy for the plan require the participant's account, in a pending divorce situation to be "locked up" until it can be proven that the divorce decree doesn't award any of the participant's balance to the ex-spouse?

[E as in ERISA]

I was under the impression that unless the plan expressly provides then the participant's account shouldn't be "locked up" until there is a DRO under review. Prior to that time, it would be an infringement on the participant's rights.

[doombuggy]

I would take steps to make sure that the spousal signature was correct (if I was the trustee of the plan). At my old job, I used to process a lot of QDROs, and quite a few death distributions. I saw a few crazy ones, so I would be wary. Good luck!