Terminated Employee's 401(k) distribution

[Guest jessica_leitch]

I have a company that terminated an employee over two months ago. On the date to termination they completed a distribution request form, Sponsor and Participant. To date the company has not sent the distribution request form to the Custodian. Is there a statutory requirement that the Sponsor must submit the form to the Custodian by? Is there a statutory requirement as to the latest date the Participant must receive their distribution by? Is there penalties and/or can the Sponsor be liable for losses incurred if they do not request the distribution in a timely manner? Thanks for your time and have a great day!

[Alf]

Let me be the first to tell you that the plan document controls. Except for death or normal retirement, there is no statutory requirement for distirubitons to be made at termination of employment. Everything depends on the plan document.

[MGB]

You may find that the plan only allows distribution requests like this once per quarter or once per year. Has the person asked the plan administrator why the delay? They may be able to tell you that it is normal procedures.

[Guest jessica_leitch]

The terminated employee has completed a distribution request form, there are no Plan limitations (i.e. quarterly) and has inquired as to why it is taking so long. The Sponsor noted that they were holding the 401(k) distribution until the Profit Sharing Plan contribution had been made. This could take up to a year. Is it still ok for the Sponsor to hold the fund even though the Participant has, and continues to, requested the distribution for a rollover into their new Plan?

[ccassetty]

As Alf said, the plan document controls. Does the plan language back up the employer's wish to hold off making payment until the discretionary contribution is made? Doesn't sound to me like it does.

One other consideration is that the distribution form signed by the participant only has a shelf life of 90 days. Once it goes past that, the participant will have to sign a new form.

[Brian Gallagher]

I would be careful if I was that plan sponsor. Since I don't know what the doc says, I'll just recount a situation that came my way recently:

We have a client that just came to us. While it was with the prior r/k, a participant asked for a distribution. The plan dragged its feet in submitting the request (for whatever reason). The person had a substantial account balance (well over $1MM).

When the distrib was finally made, the participant's account was almost $400k less than what is was when he asked for the distribution.

He took the Plan to court and won.

Wacky thing about this is that when it was at the prior r/k all the money was in a pooled acct. When it was sent to us, we put it into seperate accts.

When all the lawyers got done, it turns out that the $400k needed to be paid to this guy, and money could come out of the individual participants' accounts! Some people lost $50-60 k!!

So be careful!

Why not just pay this guy out, and then pay out again when the P/S is given?