Distribution Rollover - Error Correction

[Guest cag10]

Hello - here's the situation: The TPA where I work erroneously did not process a distribution rollover from a 403(b) to an IRA in mid-August. The participant's financial rep called in a couple of weeks ago to report this and requested that we fund the difference in losses that resulted between mid August and late October. This difference amounted to $40,000 because of the downturn in the market.

My question is this: Do we have a right to request investment elections from the rollover institution to determine what would have happened if the participant was invested in with his/her IRA? If they were invested similarly in the IRA as they were in the 403(b), the value of their account would have gone down there as well.

I'm having a hard time finding out what our liability is in cases such as this (we've had a few others that resulted in large dollar amounts as well). Does anyone have any information on this type of correction?

Thanks in advance.

[Guest Sieve]

Absolutely, you have the right to demand to see that and other pertinent information (and, if it's not provided and you refuse to pay--as you ought to--then you can find that out in discovery).

If there is liability due to not following proper instructions, the damage is not yours to guess or determine, it is for the participant (plaintiff) to prove. You would not necessarily be liable for the loss suffered in the 403(b), because, as you say, that is only speculation at this point.

To start with, I don't see how you would be liable for more than the greatest loss of the available funds through the IRA--and, without knowing whether an investment selection had been made with the IRA provider (or whether, in the face of no election, it would have defautled into cash), then you can't even start determining damages (no matter what the broker requests).

[Guest mjb]

Hello - here's the situation: The TPA where I work erroneously did not process a distribution rollover from a 403(b) to an IRA in mid-August. The participant's financial rep called in a couple of weeks ago to report this and requested that we fund the difference in losses that resulted between mid August and late October. This difference amounted to $40,000 because of the downturn in the market.

My question is this: Do we have a right to request investment elections from the rollover institution to determine what would have happened if the participant was invested in with his/her IRA? If they were invested similarly in the IRA as they were in the 403(b), the value of their account would have gone down there as well.

I'm having a hard time finding out what our liability is in cases such as this (we've had a few others that resulted in large dollar amounts as well). Does anyone have any information on this type of correction?

Thanks in advance.

No one can give you a definitive answer. The plan sponsor needs to retain counsel to review the situation.

If the plan is subject to ERISA the participant must file a claim with the plan administrator under the claims provisions of ERISA 503. This is before the participant can commence an action in federal court. As a general rule under ERISA a participant is only entitled to receive the amount of benefits in his account. Recovery of lost profits due to a decline in value of a participant's account is considered to be money damages which are not recoverable because ERISA only allows recovery of benefits under actions in equity.

If the plan is not subject to ERISA you need to research state law. Good luck finding any answers.

Who is the we that that participant's rep want to pay for the 40,000? the TPA?

[Guest cag10]

Hello - here's the situation: The TPA where I work erroneously did not process a distribution rollover from a 403(b) to an IRA in mid-August. The participant's financial rep called in a couple of weeks ago to report this and requested that we fund the difference in losses that resulted between mid August and late October. This difference amounted to $40,000 because of the downturn in the market.

My question is this: Do we have a right to request investment elections from the rollover institution to determine what would have happened if the participant was invested in with his/her IRA? If they were invested similarly in the IRA as they were in the 403(b), the value of their account would have gone down there as well.

I'm having a hard time finding out what our liability is in cases such as this (we've had a few others that resulted in large dollar amounts as well). Does anyone have any information on this type of correction?

Thanks in advance.

No one can give you a definitive answer. The plan sponsor needs to retain counsel to review the situation.

If the plan is subject to ERISA the participant must file a claim with the plan administrator under the claims provisions of ERISA 503. This is before the participant can commence an action in federal court. As a general rule under ERISA a participant is only entitled to receive the amount of benefits in his account. Recovery of lost profits due to a decline in value of a participant's account is considered to be money damages which are not recoverable because ERISA only allows recovery of benefits under actions in equity.

If the plan is not subject to ERISA you need to research state law. Good luck finding any answers.

Who is the we that that participant's rep want to pay for the 40,000? the TPA?

Yes, the broker wants the TPA to fund 40K in losses as a result. Thanks for the guidance.