Timing of distributions

[Guest babs51]

What is the timing obligation of the employer to notify a terminated participant of his / her vested accrued benefit under various scenarios:

In a 401(k), PS or MP plan - individual accounts - where document says "as soon as administratively feasible at Participant's election";

In a 401(k), PS or MP plan - pooled accounts - where document says "as soon as administratively feasible after Plan Year coincident with or next following termination of employment";

In a DB plan - where document says "as soon as administratively feasible following separation of service";

Basically - must the employer as plan administrator be proactive regarding notifying the terminating participant of this entitlement or can the employer wait for the employee to come forth and ask for the distribution?

[WDIK]

The following may be of some help:

http://benefitslink.com/boards/index.php?s...opic=22887&st=0

(Specifically the third paragraph of Jed Macy's comment and pax's comment.)

[Guest padmin]

WDIK

THE LINK IS HELPFUL. BUT I THINK THE QUESTION IS DOES THE EMPLOYER HAVE AN OBLIGATION TO PROVIDE DISTRIBUTION PAPERWORK TO AN EMPLOYEE UPON TERMINATION IN A DC OR DB PLAN OR CAN THEY WAIT UNTIL THE PARTICIPANT REQUESTS PAYMENT.

[Guest JVH]

I would think that if the SPD has properly advised the former participant of the distribution options and procedures, then that is all the administrator/employer needs to do. I don't know of any requirement that the fiduciary write and basically say "did you know you can take a distribution now." Having said that, it probably is a good procedure or policy to advise participants of the general timing rules and procedures in an exit interview, and let them know who should be contacted to request the distribution forms and special tax notice.

This assumes there is no RMD issues involved.

[WDIK]

Several Points:

1. I felt the link was relevant because:

a. It points out that the administrator must make an interpretation of plan

language with respect to distributions.

b. It points out that the a consistent policy should be adopted and followed.

2. A number of variables regarding the timing and notifications of distributions may apply in addition to the example language given, including:

a. Forced cash-outs for amounts under $5,000.

b. QJSA/QPSA rules.

c. Administrative costs associated with terminated participant accounts.

d. Problems associated with missing participants.

e. Application procedure.

f. Valuation dates/methods.

3. If plan language indicates a "date" when the distribution will be made, it is my view that the administrator should be proactive in notifying the participant in order to follow the document.

4. If plan language indicates the distribution will be made at the participant's request, it is my view that the administrator should be proactive with the participant. While there are some instances it may not be desirable for the employer to complete the distribution, I think there are more instances where it is beneficial.

5. Terminated participants are entitled to other disclosure items anyway (i.e. SAR) so why not provide distribution materials as applicable?

6. Now I have gotten too long-winded.