emmetttrudy Posted March 18, 2014 Posted March 18, 2014 If a Plan pays out a participant wihout the participant filling out any distribution paperwork is this a PT? No election forms, no spousal consent, etc. they just sent the participant a check. Lots of issues here we're aware of but my only question is, is this a PT?
emmetttrudy Posted March 18, 2014 Author Posted March 18, 2014 Based on the definition, it doesn't appear to be because the participant doesnt seem to fall under the definition of "disqualified person". Thoughts?
david rigby Posted March 18, 2014 Posted March 18, 2014 What does the plan say? Likely, distributions under $5,000 do not require spousal consent. However, due to mandatory withholding rules, a potential distribution of $200+ can be distributed as a direct rollover, so the participant should receive an election for this purpose. If the distribution was made in cash with no withholding: Uh Oh! See IRC 401(a)(31). I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
My 2 cents Posted March 18, 2014 Posted March 18, 2014 A violation of plan provisions or ERISA or regulations, maybe. Don't see how if the payment represents the recipient's entitlement under the plan under circumstances permitting such a payment it could be a prohibited transaction. If the participant's benefit is worth less than $200 and the participant has separated from service, it could be entirely acceptable under the rules. Always check with your actuary first!
Effen Posted March 19, 2014 Posted March 19, 2014 I think there are lots of things we need to know before we can answer this question. How much was the person paid? Was the recipient an HCE? What are the circumstances surrounding the payment? If this was a $150 payment to a NHCE, then probably not an PT. However, if the recipient was the HCE owner who wrote himself a check, then you probably do have a PT. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
My 2 cents Posted March 19, 2014 Posted March 19, 2014 If the recipient was the HCE owner and the check was for a benefit provided under the plan, I don't think it could be a PT (or falls under a general exemption). Payments in accordance with the terms of the plan are not supposed to be treated as PTs. Always check with your actuary first!
emmetttrudy Posted March 19, 2014 Author Posted March 19, 2014 it was an NHCE. non-owner. over $5,000. the client had requested a distribution packet, and apparently anything longer than one day to turn it around was too long for them, so they just sent the participant a check (no tax withholding) based on the estimate of their benefit from the prior statement, and planned on reconciling it once the actual calculation was done.
Effen Posted March 19, 2014 Posted March 19, 2014 Probably not a PT, but they may have some tax issues to deal. Hopefully the actual lump sum is higher than they paid, or it could get more interesting. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
My 2 cents Posted March 19, 2014 Posted March 19, 2014 If it's a DB plan, over $5,000 requires participant consent and a valid spousal waiver (if there is a spouse). Don't defined contribution plans have to give the participant the right to elect a direct rollover, even if payouts can be forced? Question: If the payment did not come from the plan ("...so they just sent the participant a check..."), does the plan still owe the participant the money? Always check with your actuary first!
GMK Posted March 19, 2014 Posted March 19, 2014 Don't defined contribution plans have to give the participant the right to elect a direct rollover, even if payouts can be forced? yes
BG5150 Posted March 20, 2014 Posted March 20, 2014 Don't defined contribution plans have to give the participant the right to elect a direct rollover, even if payouts can be forced? yes However, if it's under $200 we usually just send a check, as there is no withholding, so the participant has no taxes to make up if they want the funds in an IRA. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
GMK Posted March 20, 2014 Posted March 20, 2014 ^good point, BG, and this fits with those plans that require that rollovers must be for at least $200.
My 2 cents Posted March 21, 2014 Posted March 21, 2014 It was noted in a subsequent post by the original poster that the amount in question was over $5,000. Sounds like someone is not bothering to follow the rules. Always check with your actuary first!
BG5150 Posted March 21, 2014 Posted March 21, 2014 ^ Ok, then. Next question, did they withhold? Or roll the money over? A PT? I don't think so. VCP? I doubt it. Get it fixed. Come up with procedures that keep it from happening again. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
jpod Posted March 24, 2014 Posted March 24, 2014 If the same fiduciary was approving the transaction from both sides why isn't it a slam dunk 406(b)(2) PT (assuming the plan is subject to Title I of ERISA)?
jpod Posted March 24, 2014 Posted March 24, 2014 Sorry. I posted my last response on this thread by mistake.
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