Delay in Depositing Distribution Check

[Flight33]

A DB plan participant did not cash the first check for his benefit distribution. When re-issuing the check, can the employer pay the original amount or does it have a duty to pay interest to cover any lost earnings?

Does it matter if the payment was a lump sum distribution or part of an annuity?

[ETA Consulting LLC]

Not to answer a question with a question, but on what basis would anything other than the original amount be paid?

Just trying to understand what is being asked.

[Flight33]

the company is worried that there is a fiduciary responsibility to provide interest, because the amounts in the account could be considered plan assets until they are paid out. (i.e. the check is presented for payment) so, if a participant fails to deposit the check and the amount remains in the trust or clearing fund (as plan assets), is there a responsibility to add lost earnings/interest to the replacement check.

i haven't found any guidance to suggest this is the case (in fact, the negative implication of the guidance i have seen is that interest wouldn't be paid). just wondering if there's something i'm overlooking or not considering...

[ETA Consulting LLC]

It's a non-issue. Once the distributed the check to the participant, then there was nothing on their part to preclude the participant from depositing the check. Therefore, it's nothing to correct. If the check was distributed in a prior year, then they would've already provided the 1099-R to the participant. There would be NO need to provide a new 1099-R; as the participant's tax obligation would be for the year he had constructive receipt of the funds (stating this loosely). Merely failing to deposit the check changes nothing.

Just don't sweat it...

Good Luck!

[masteff]

In more technical terms, the participant had constructive receipt and realization of income when the original check was issued. So the benefit has legally left the plan. Reissuance is merely an administrative courtesy.

[Bill Presson]

In more technical terms, the participant had constructive receipt and realization of income when the original check was issued. So the benefit has legally left the plan. Reissuance is merely an administrative courtesy.

Ironic that the DOL doesn't consider this to be true when an employer sends a check to a custodial account. If it hasn't cleared the bank, it doesn't count.

[Flight33]

thanks all. classic case of trying to prove a negative on a non-issue. just wanted to make sure there's nothing out there being overlooked.

[mbozek]

A DB plan participant did not cash the first check for his benefit distribution. When re-issuing the check, can the employer pay the original amount or does it have a duty to pay interest to cover any lost earnings?

Does it matter if the payment was a lump sum distribution or part of an annuity?

Plan can only pay the amount of the participant's accrued benefit under the plan formula. Interest is not part of the formula. Secondly reason for the delay is that the participant failed to cash the check.

[Guest rbuhite]

Different question. What if a NQDC participant fails to cash a distribution check sent to his last known address? What should be done in this instance?