Trust to Trust Transfers

[Guest Julie]

We have a terminated employee who insisted on having his account balance transferred from our 401(k) plan directly to his IRA via a trust to trust transfer. Our current recordkeeper will not do trust to trust transfers; they issue a check to the IRA, send it to the participant, and then it's the participant's responsiblity to get it to the IRA or new plan. From what I understand, the majority of recordkeepers do not do trust to trust transfers. Now this terminated employee is threatening to sue us and our recordkeeper for lost interest.

I'm curious to see if my understanding that the majority of recordkeepers do not do trust to trust transfers is correct. Thanks.

[JanetM]

Very few plans do this for individuals and when they do the participant picks up the expense. On the IRA side it is common, and the participant is charge the wire fee. Does the SPD explain the distribution provisions?

[Belgarath]

Although many plans will actually send the check directly to the new institution, see 1.401(a)(31)-1, Q&A-4, which indicates that the method you outline is acceptable. Subject to specific requirements for the payee line of the check itself, outlined in the Q&A-4.

[Guest Julie]

Thanks for your reply. Yes, the SPD and plan doc clearly outline the distribution options. Very frustrating!!

[Guest mjb]

Before worring about a lawsuit how about asking what right does a participant have to receive a form of distribution. Outside of the J & S requirement there is no right to a particular distribution form under ERISA. There are numerious cases which have held that participants have no right to a particular form of benefits under ERISA. Also suing for lost interest is a claim for money damages and ERISA is a law of equity.