Crazy anti-alienation issue

[ERISAatty]

A current client has just posed a question on some pretty str ange facts.

This person acted as plan administrator of a small (less than 30 participants) company 401(k) at a former job. The former employer is now being dissolved, and the 401(k) at issue (a prototype document) was terminated in 2004.

Also in 2004, prior to plan termination, however, the mistress of a former/terminated employee with serious mental health issues presented a Power of Attorney in connection with the former employee's request for payment of his benefit (amount was just under $2000). Plan administrator paid the benefits to her (!). Note that former employee was married. (QJSA is not applicable).

Employee has since died. His widow has now contacted the former plan administrator to ask where the benefit it.

I'm trying to gather more information to see if plan document had a provision permitting payment to a power of attorney in the event of incompetency (but am still worried that he wasn't legally incompetent). Sure looks like an improper distribution to me.

The client is asking if he should tell the widow (1) that the amount was paid to the mistress, and (2) the mistress's name.

My bigger concern is his personal liability for making a wrongful distribution.

Still trying to gather more info, but wow. Any suggestions?

To me the options appear to be (1) try to get bankrupt company to pay the widow the benefit amount, (2) say that amount was paid to decease husband in 2004 under terms of the plan (omitting mistress detail - and thereby avoiding liability for any resulting violence, etc.), or (3) doing a John Doe EPCRS application for IRS guidance on proper correction.

I suspect client will prefer to try to take the position that distribution was properly made to employee. But if the wife were to get the full story and go the DOL, I don't see how he avoids liability, other than by standing behind a plan provision (that I hope exists) permitting payments to be made to a power of attorney.

Don't see facts like this every day....

[K2retire]

How about leaving out the "mistress" part but saying that the distribution was made pursuant to a request under the power of attorney. Unless the power of attorney says it is only valid if the person is incompetent, compentence of the participant is probably not an issue.

[mbozek]

1.Was the check paid to the GF as attorney in fact for participant? Participant can also assign payment to another party if POA allows.Tell the spouse the benefit was paid in 2004 and there are no benefits payable at this time. Spouse has no right to know how benefits were authorized or to see distribution authorization because spouse has no rights under plan.

2. Did the POA authorize the agent to request a withdrawal of of pension benefits? If yes then no problem. If no see #3 and 4.

3. What is statute of limitations in state where spouse lives for filing claim for benefit? Under ERISA s/l for filing claim for benefits is the period under closest applicable state law. If s/l has expireds spouse shoud not be able to recover.

4.Given all of the time it will take to reasearch these issues why not offer spouse 2k in settlement outside of plan in return for waiver and release of all claims against plan, employer and fiduciary. It will be cheaper than researching the issues.

[Guest SWH]

I had a POA for a participant being in jail presented with a distribution one time. Sent it to the attorneys for research because I had only seen for incompetency. Lawyers did the research and came back that everything was okay.

I would definitely not bring up mistress.

I would state that there are no assets to distribute because they were distributed on X date. and be done.

[Randy Watson]

1.Was the check paid to the GF as attorney in fact for participant? Participant can also assign payment to another party if POA allows.Tell the spouse the benefit was paid in 2004 and there are no benefits payable at this time. Spouse has no right to know how benefits were authorized or to see distribution authorization because spouse has no rights under plan.

2. Did the POA authorize the agent to request a withdrawal of of pension benefits? If yes then no problem. If no see #3 and 4.

3. What is statute of limitations in state where spouse lives for filing claim for benefit? Under ERISA s/l for filing claim for benefits is the period under closest applicable state law. If s/l has expireds spouse shoud not be able to recover.

4.Given all of the time it will take to reasearch these issues why not offer spouse 2k in settlement outside of plan in return for waiver and release of all claims against plan, employer and fiduciary. It will be cheaper than researching the issues.

Is there a violation of the anti-alienation rule if a distribution is made to an agent authorized to request and receive a distribtion under a POA but the check is made payable to the participant?

[Mike Preston]

That has to be ok, because the holder of the POA has a fiduciary relationship with respect to the participant.

[mbozek]

As I understand it the agent is authorized under the POA to request the payment but the plan issues the check to the participant as the legal owner of the account. Agent cashes check by signing own name and adding POA to identify that agent has authority to cash check. I have used the arrangement with several clients where the agent requests the the MRD for the participant under a POA and the plan admin isues the check to the agent in the name of the participant b/c funds are owned by the participant and the agent signs his/her name and adds POA. Trick is that POA must authorize agent to request benefit distributions or act on behalf of principal in retirement matters. NY Short form POA has box that is checked by principal to authorize agent to act on pension matters.