Distribution dates

[Guest dhall]

Technically, what does "as soon as administratively feasible" mean?

Plan documents usually state that distributions will be made "as soon as administratively feasible".

[Below Ground]

I have heard on many occassions that this can mean (1) shortly after the deposit of the last contribution due to the person's account, and also (2) within the 6 months that follows the close of the related plan year. (I can't give a reg cite as I don't think one exists.) Most plans allow for interpretation by the Plan Administrator, with all such decisions being "final". If the document does not clearly define what this means then I believe this type of provision would kick in. Then, the decision of the PA would apply if that position could be justified as "reasonable". Anyway, while this may not provide an "official answer", I hope it helps.

[Bird]

I agree with Below Ground, and especially the part about after the last contribution is due...could be 9 1/2 or even 10 1/2 months after the end of the year for employer contributions. In certain circumstances we might pay someone before that and then pay them again, but we'd rather not. There's no hard and fast time frame.

[Sully]

Although I do not have a definition for what is “as soon as administratively feasible” I am sure I will ‘know it when I see it’. Nonetheless, I recommend paying any distribution as soon as you receive the appropriate distribution paperwork. If you need to process another distribution, then so be it. With the way the market has performed recently I would hate to have to explain to a participant (& possibly his attorney) that we did not process his distribution 10 months ago because we did not want to have to do it twice.

[GMK]

I think Sully is right.

To me, the meaning of "as soon as administratively feasible" depends on the circumstances. For a plan termination, it can be a year. For 401(k) salary deferral deposits, it is a few days (how many depends on the individual situation).

In each case there will be a set of administrative tasks (completing forms, verifying information, moving funds, etc.). I think that you are OK if you act as promptly as the applicable administrative steps allow. Don't dawdle.

[Below Ground]

There are problems under some plans with just paying when the person submits forms. Consider the situation of an HCE that is paid his/her entire account, and then it is found that the payout included excess contribution from ADP/ACP Testing. You may have allowed monies that can not be rolled over to be rolled over. (There is a correct for this, but it is complicated.) Another situation is when each person has an individual account at an asset vendor, and monies are erroneously deposited to that person's account (Bob gets Sally's money). Yet another situation is when match is concurrently funded but is subject to annual true-up.

I'm not saying you can never do "payouts on demand". I am saying that under some plans that would not be prudent. I have given a few situations above. There are others. I have actaully seen plans in very hot water given a policy of on-demand payout. I suggest that "administratively feasible" should be defined with respect to a given plan by the plan administrator. This should not simply be a "knee jerk decision".

I would definitely agree that the SPD should be very clear on this topic.

[GMK]

Excellent points, Below Ground.

I see your examples as administrative issues that relate to getting the payment right. In some cases, they could justify delaying a payment until the final numbers are available. It depends on the circumstances.

I still think that the "as soon as" means that you don't wait if you can get it done sooner. For example, I think one has a duty to promptly check to see that Bob's account balance is correct and not wait till the year end review. In other cases, like the match true-up, one can usually determine a "the distribution will be at least this" amount and pay it now, followed by a second, final payment when the real numbers are available. (But I wouldn't do this if there were any doubt in my estimated minimum distribution amount.)

And when a payment is delayed, it would be good practice to advice the participant of the reason for the delay and the possible bad consequences of not delaying.

[Below Ground]

I also think it is important to consider what controls processing. Is it the participant? The participant's broker? The participant's wife? Or perhaps the participant's uncle who was once in a 401 something plan that let him take money whenever he wanted some cash for drinking (Yes, I've heard that one!).

The Plan is ultimately in control, which is not necessarily what the individual participant wants. Protecting the plan's qualification; thereby, preserving the benefit of all members should be the guiding force. To do this correctly, members must be properly advised via the SPD. Then, when a person requests money, there must be a written reply that includes a clear explaination of timing. What should never control is that the person simply submit papers for a distribution.

As any good TPA knows, there is usually a "function" that involves all member accounts when processing a single person's account. Examples include true-up, discretionary year end allocation, certain compliance testing.....

A distribution is "final". Is it really prudent to work with estimates? If you search this board you will find a number of posting related to paying to much to a person, how do we get it back. There is an old saying of do it right or don't do it at all.

As I stated above, there are times when payment on demand should be processed. There are also times when a "partial payment" is prudent. Lastly, there are times when payment should simply not be made.

[GMK]

I think we are in agreement, Below Ground, and I like your summary. No one controls what is "administratively feasible." The Plan Document controls.

I see "as soon as administratively feasible" as limiting the reasons why the Plan could delay a distribution (or other action) to only the administrative steps that are necessary and prudent to ensure that the distribution is made (or other action taken) in accordance with the Plan Document. For example, if the distribution amount is known (the other factors, like true-up, etc., do not apply or are not going to change), then the Plan cannot delay the distribution payment for convenience or because the sponsor prefers that the payment be made later or any other reason that is not related to making the distribution in accordance with the Plan Document.

[Below Ground]

Agreed!