Pensioner is not cashing payments to avoid IRS

[Guest Ben S]

I have a situation where we (institutional trustee) detected almost 2 years worth of uncashed checks. We assumed she was deceased, but found she was not. Instead we learn from the TPA that she is collecting, but not cashing the checks to avoid (attachment) by the IRS. In addition, apparently there is some form of alert across our bank (on which the payments are drawn) to flag when she attempts to cash the checks. Its quite easy to and we will be cancelling out all these checks and restoring the funds to her account in the plan, however:

1. What is our obligation to continue making her periodic payments, given what we know and

2. How can we force her to take these payments? Is her refusal to accept the payments enough to be considered instructions to stop her pension payments?

Anyone been down a road as murky as this one?

[david rigby]

Just a few thoughts, in no particular order:

- What kind of plan is this?

- What is the basis on which the payments commenced? (retirement, age 70+, etc.)

- Is this an HCE or former HCE?

- Does the plan have any provision which permits the participant to give "instructions to stop her pension payments"?

- Does this plan really have an "account" for the participant?

[Guest b2kates]

We had a similar situation, where the participant was a tax protester and would not supply their SSN.

We contacted the IRS and were provided direction, that the funds were subject to a tax lien and that we were to notify the Service when distributions were made.

Remember that a plan in distribution status may be attached.

My thought is that you should get guidance from the service, and that you can not stop the monthly distributions and that it is good practice that the bank has a hold on cashing the checks, but also watch out that the participant does not go to a different bank or a check cashing place or sign overe the check to someone else to avoid the hold.

[mbozek]

Can you tell me if the distributions have been reported as taxed to her on the 1099 since they were constructively received? If the funds are taxed to her how can you restore them to the plan since they are no longer plan assets?

I dont know why there can be no seizure until she cashes the checks. If the funds are payable to her they are as good as cash. The IRS has authority to seize pension distributions which are payable from a plan even if the participant has not requested a distribution.

What does the trusts' counsel say about the obligation to turn over the checks to the IRS? As trustee where do you have descretion to stop payments- have you talked to counsel for the plan?