Payment to joint account?

[Carol V. Calhoun]

Plan participant has requested direct deposit of a plan payout to a bank account. The bank account is a joint account with another individual (not the spouse), and the plan has reason to believe the other individual is sketchy. Any thoughts on a) whether it is acceptable to pay to a joint account at all (since it represents payment in part to a party other than a plan participant), and b) whether the plan has any duty of inquiry to make sure, for example, that this is not a situation in which the right to payments has been assigned to a creditor?

My sense is that payment to a joint account is fairly common, and that so long as the payment is made pursuant to the request of the participant, the plan has no further duty of inquiry. After all, once a check was cut, the participant could transfer the money to another party herself. And I've seen in the past situations in which a creditor showed up with the participant, and the participant signed over the check to the creditor on the spot. However, I'm not finding specific authority on point.

[Lou S.]

Do you force married couples to open a non joint account to make payments?

I'd have trouble making the payment to an account where the participant is not listed as an account holder but if they want it to go to a joint account, I'm not sure any authority exists to deny the payment.

[jpod]

Is it a fiduciary act under ERISA to wire money to an account selected by the participant? I have no idea, but I wouldn't be surprised if it is, or at least I wouldn't be surprised if a judge could be convinced that it is if the facts end up being bad enough. While a fiduciary doesn't have to undertake any due diligence concerning the account, you established as a fact that someone acting for the plan thinks the joint account holder is sketchy, so that would make me nervous if I were that person. What would be wrong with just refusing and saying "we'll hand you a check or wire it to an account that is not a joint account with the sketchy person"? Are they afraid to confront the participant over this?

[david rigby]

I'm very sympathetic to Carol's dilemma. IMHO, this is another example of how the PA can become aware of (potential) fraud, with no method to address it. Who stands up to fight this fraud? Whose job is it to look out for a creditor being the second name on the account (which is the specific fraud considered in the original post)? (BTW, even if that is true, is "fraud" the correct word?)

- Can the PA bring suit? Continental Airlines tried that a few years back (search for "sham divorce") and got spanked by the court.

- Can the PA refuse to pay? That seems unlikely.

- Can the PA demand a different checking account? What plan provision and/or ERISA provision would permit this?

- Can the PA ask a court to take action? If the court says, "you may be right, but you have no standing", what does the PA do then?

- If the Plan has no J&S provisions, then the payment likely will be a lump sum (perhaps very soon after severance of employment), leaving scant opportunity to ask questions, much less take any action.

Upon further reflection, this joint account might be a simple, clever, and legal method for this creditor to get paid: the money and the 1099R go to the participant, which is all that is required of the Plan.

Perhaps the more difficult question is when the PA has reason to believe the third party is manipulating the participant in some manner, or using Carol's technical term "sketchy", such as a scheming cousin, nephew, etc.