401k Plans and The Patriot Act

[ratherbereading]

I have a client whose participants all have individual accounts at Matson Money/Trust Company of America. They receive statements that say "xxxx 401k Retirement Plan FBO Participant Name." The plan does not exclude ANYONE from participating. One participant has no ID (he moved from another state and has not gotten a current state ID). The company hired him based on his social security card and previous ID. Trust Company of America refuses to open an account for him citing The Patriot Act. They returned his deferral money and matching contribtuions. Now the plan is in violation of the plan document. Anyone ever come across this?

Thanks in advance.

[My 2 cents]

Is it permissible for a financial institution to require driver's licenses or other state-issued IDs only from the current state of residence? Wouldn't any ID, issued by the federal government or any state, suffice? Surely a driver's license or like ID from any state in the union must be sufficient under the Patriot Act!

How happy is the sponsor with that financial institution? Sounds like there is sufficient cause to find a different institution to handle their plan's assets.

[ratherbereading]

The issue is this participant has NO ID at all from anywhere, and doesn't seem in a hurry to get one. The financial advisor works closely with the financial institution in question, and the my contact (not the Trustee or Plan Sponsor) believes everything he says. He discourages the client from going anywhere else. I'm not sure, however, the Trustee knows what's going on.

[My 2 cents]

The issue is this participant has NO ID at all from anywhere, and doesn't seem in a hurry to get one. The financial advisor works closely with the financial institution in question, and the my contact (not the Trustee or Plan Sponsor) believes everything he says. He discourages the client from going anywhere else. I'm not sure, however, the Trustee knows what's going on.

No ID and not in a hurry to get one? That's crazy talk! How does the employer even pay them - in cash? If by check, how does the employee cash the check?

[BG5150]

Wait. You said the person has a social security ID and "previous ID" Did he just chuck the previous ID?

[Bird]

"Returned" the money to whom?

Participant ID shouldn't really be an issue; I see lots of FBO accounts (and hate 'em but that's another story) and they don't necessarily require a participant ID; anything/everything should be in the name/ID # of the plan, but allowing the participant to self-direct. The participant is not the investor, the trustee is. At the very least they can open an omnibus account which will effectively all be for that participant since no one else will have an interest in it.

[ratherbereading]

In the continuing saga of this story ---- the plan paid him out, which is a prohibited transaction. How is this fixed? It's a small amount $160 (401k) and $40 (match). It's already been done, so it can't be undone. My instinct is to tell them to let him start participating and hope the plan doesn't get audited. Now the investment company says he can contribute without a picture ID, but he cannot withdraw his money. He refuses to get an ID....

[BG5150]

About the withdrawal: these are trust accounts, and the Trustee should have the say of who can and cannot take their money. It should be up to the Plan Administrator to follow prudent plan policies as to what is needed to make a distribution. If the Trustee is satisfied with those policies and is confident they have been followed, it should approve the withdrawal.

[ratherbereading]

The participant is not terminated, however, so he shouldn't have gotten his money.

[Mike Preston]

Something doesn't add up. No Trustee refuses to follow the instructions of a Plan Administrator. No Plan Administrator authorizes funds to be paid to non-terminated participants. No Trustee pays monies to somebody without instructions from the Plan Administrator.

You aren't telling us something.

[ratherbereading]

Yes, I am actually telling you everything. The Trustee (also the Plan Administrator) agreed that this participant should not have contributed without an ID and did not prevent Matson from distributing his money. I had no knowledge about it until after the fact.

[K2retire]

Something doesn't add up. No Trustee refuses to follow the instructions of a Plan Administrator. No Plan Administrator authorizes funds to be paid to non-terminated participants. No Trustee pays monies to somebody without instructions from the Plan Administrator.

You aren't telling us something.

You are forgetting that record keepers are notorious for making and following their own rules that don't necessarily conform to the regulations or the instructions of the trustee/Plan Administrator.

[CMarkB]

My understanding is that, ordinarily, ERISA accounts are not "accounts" for purposes of applying the Customer Identification Program (CIP) requirements under the US Patriot Act at the participant level.

[ratherbereading]

That's what I think to, but they insist they are correct ... I asked them to provide me with the language in the Patriot Act that applies to 401k plans. No response.

[BG5150]

Remind them that the accounts "belong" to the trust. The Trustee is just allowing them limited control by allowing them to direct the assets in the segregated account under the trust as a whole.

[ratherbereading]

Good point. I actually found proof that ERISA plans are exempt from CIP as someone mentioned earlier. I have imparted this wisdom to Matson Money.

[Mike Preston]

It sounds like an "insignificant" operational error and therefore correctable under SCP. Make it so. Have the plan sponsor make the plan whole. It isn't worth investigating who might be held accountable and to the extent the participant receives a windfall, so be it.

As part of the SCP correction the Plan Administrator should tighten their procedures to preclude the financial institution from making distributions without appropriate written authorization. Authorization should require the blessing of their TPA (you?).