Guest jkrad Posted January 5, 2004 Posted January 5, 2004 I am working on terminating a plan with all of the participants paid out except one. I believe I have tried all avenues to locate this participant but have been unsuccessful so far. I have sent letters to the last known address, sent a letter to the IRS for forwarding, yet no response. Are there any further avenues I could try to locate this individual. I would like to close this plan asap. Any and all suggestions would be helpful.
Guest yukon Posted January 5, 2004 Posted January 5, 2004 Said it before, and I'll say it again (regardless of backlash)...I have yet to hear a well-founded, legally-based rebuttal to 100% withholding in a case such as this.
Guest Pensions in Paradise Posted January 6, 2004 Posted January 6, 2004 Yukon - just out of curiousity, on what legal basis are you allowed to withhold 100%?
rcline46 Posted January 6, 2004 Posted January 6, 2004 In support of Yukon's position - if anyone takes a position because they cannot find any authority denying that position they do not need authority for the postion. Yukon is 'challenging' us to find statutory authority stating he cannot withhold 100% as taxes as he has been unable to find any. In fact, the redoubtable Mr. James Holland cannot quote any authority other than he doesn't like it. However, I think jkrad needs to try a couple of private locator services before he gives up.
mbozek Posted January 6, 2004 Posted January 6, 2004 Withholding of income due an employee or beneficiary requires statutory authorization to prevent violation of the non alienation rules. Reg. 1.401(a)-13©(1). Under IRC 3405© a plan administrator is required to withhold 20% of a taxable retirement plan distribution which is not rolled over to another retirement plan or IRA. Reg. 1.3405©-1Q-3 permits a distributee to enter into an agreement with the plan admin or payor to withhold more than 20% of the taxable distribution. There is no authority for the the plan admin/payor to withhold amounts in excess of 20% without securing the distributee's agreement or obtaining a valid power of attorney from the distributee. Why not forfeit the benefits and use the proceeds to pay plan expenses. mjb
Guest yukon Posted January 6, 2004 Posted January 6, 2004 PiP: None rcline: thank you! mbozek: I am aware of the regs. None of these cover missing participants. Ergo, they don't provide "authority" either way. On the non-allienation issue...my position would be that forfeiting the ppt's vested balance is a much more aggressive stance than making sure he get's it (albeit eventually).
mbozek Posted January 6, 2004 Posted January 6, 2004 There is no authority under the tax law or regs for 100% withholding of a missing participant's accrued benefit without consent. That is the basis for the IRS position. I dont think you have any basis for concluding that the participant will eventualy collect the withheld funds if the 1099 cant be forwarded. Under the tax law a refund request must be filed within three years of the due date for filing the tax return. So there will always be a risk that the participant could make a claim for benefits from the plan admin. Forfeiting the benefit is permitted under the vesting regs of 1.411(a)-4(b)(6) so there is no disqualfication risk. Or try one of the locater services, e.g., equifax. mjb
Alf Posted January 6, 2004 Posted January 6, 2004 I assume that all of you are talking <$5,000 distributions or does that even matter? Just to stir things up a bit more, aren't there literally criminal penalties for knowingly filing incorrect withholding forms?
rcline46 Posted January 6, 2004 Posted January 6, 2004 There is one horrendous hole in the regulations on missing participants that leaves the sponsor in a difficult position. What to do if you just cannot find them? Forfeiture only causes the sponsor to have to pony up the money 15 years from now when the person returns. Of course if sponsor is going out of business then there will be no one to collect from. By the way, on plan termination for a plan with no annuity options, 411(a)(11) allows force out of any amount. New regs allow setting up an IRA account if over $1000, if you find someone to do it. Then it becomes the IRA custodian's problem!
R. Butler Posted January 6, 2004 Posted January 6, 2004 I hate forfeiting participants in these sitiuations, but assuming all avenues to find the participant have been exhausted (and I would first try commercial locator services as rcline suggests) & the plan document allows for it, then I agree with mbozek; you should forfeit the balance.
FundeK Posted January 6, 2004 Posted January 6, 2004 What should be done with the funds once you forfeit the participant? What if the document states that forfeitures are to be used to reduce future employer contributions? Or reallocate? If this is the last participant and the plan states to reallocate, would you reallocate pennies to all of the participants and then pay them all out again? Hopefully in this case forfeitures are used to pay expenses. If not, can you amend to charge the final recordkeeping fees to the plan (i.e., the remaining participant)? How much are we talking about anyway?
WDIK Posted January 7, 2004 Posted January 7, 2004 Section 209 of HR 3762 (The Pension Security Act of 2002) proposed amending Section 4050 of ERISA to allow DC plan sponsors and noncovered DB plans to elect to transfer missing participant benefits to the PBGC upon plan termination. This bill was passed by the House on 4/11/2002. Then I think it died in committee in the Senate. Does anyone know of any current plans for resurrecting this provision? ...but then again, What Do I Know?
Harwood Posted January 7, 2004 Posted January 7, 2004 Maybe it'll be part of resurrected legislation to require spousal consent for distributions from all plans, not just annuity plans.
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