Distribution to non-participant

[kmhaab]

Pension plan erroneously made a lump sum distribution to an individual who had never been a participant in the plan or worked for the employer. Do the ECPRS correction procedures for an overpayment apply here or is there something more specific to this situation? The ECPRS definition of overpayment refers to a payment to a "participant or beneficiary" - and this individual was neither.

Here's the story - former employee allegedly provides a name and SSN that do not belong to him he was hired. Employee Bill participates in the pension plan under the false name and SSN for a few years but is eventually terminated for providing false employment documents (apx. 2008).

In 2016, the individual whose name and SSN were used by the former employee applies for social security and receives a 'Potential Private Pension Benefit Notice' regarding the pension benefit under his name and SSN. He contacts the employer (whom he never worked for), files a claim, and is paid a lump sum distribution of apx. $7,000. He provided a different DOB than what was on file for the former employee but that was not caught at the time. Someone how he learns there is a 401k benefit under his name/SSN as well and while trying to get that paid to him, he discloses to the employer that he had never worked for the employer and was allegedly a victim of identity theft by a cousin. Recipient is refusing to pay the $7,000 distribution back to the plan.

I'm clear on the rights of the real former employee to the benefits he earned while working, despite the incorrect SSN, and that he will have to provide a valid SSN or TIN to receive distributions from the qualified plans. But how does the employer correct the $7,000 distribution to other guy? Do the ECPRS overpayment procedures apply? Does the employer have any avenues available for recoupment that they would not have if this was an overpayment to an actual participant (i.e. does this guy have rights under ERISA here)?

The employer made the error here, but the recipient also made a claim for benefits from a plan he knows he never participated in. He has acknowledged that the former employee participated in the plan and "earned" the pension benefit using the recipient's SSN.

Any thoughts would be appreciated!

[jpod]

If I were advising the employer, I would advise it to pay the money into the plan, with some reasonable interest factor. Probably a breach of fiduciary duty in causing the money to be paid to the wrong person (lack of sufficient internal controls, etc.). The employer can then attempt to collect from the individual to whom it was paid, but the employer should face up to the fact that it may have to suffer the loss if it can't collect.

[Lou S.]

I would suspect that in court the Plan Sponsor and/or Plan would prevail over the fraudulent claim for benefits from the person not entitled to those benefits but would likely need to determine if the cost of pursuing it is worth the recovery of the funds.

If they can't recover the funds then yes they would have to restore them.

[Belgarath]

Truth is stranger than fiction, isn't it? The idea of payout to an incorrect person is of personal interest to me at the moment. This is off-topic, but a short version of the story.

My own 401(k) account with a prior employer is currently with a MAJOR insurance company - my former employer switched platforms/investments last year.

When I went to set up my on-line access, the following appeared (just one paragraph in a much longer disclaimer - and I've deleted the name of the insurance company):

Any transaction(s) entered by an individual using your User ID and Password will be deemed to have been authorized by you, unless you have previously notified **********, in a timely manner, of the loss, theft or unauthorized use of these personal identifiers. If you become aware of the loss, theft or unauthorized use of your User ID and Password, you must notify ********** by phone or in writing (delivered via U.S. Mail, certified, return receipt requested) at the address below. Note, too, that if an accountholder authorizes a third party to access his/her account and/or our services, the accountholder agrees to defend, indemnify, and hold ********* and parties contracting with ********** not responsible for any liability, losses, damages and reasonable costs and expenses (including attorney fees) arising out of claims or suits by any such third parties based upon or relating to such access and use.

It is the first sentence that is of concern to me (I have no problem with the rest). If someone somehow steals my identifier, or obtains it through hacking into the insurance company's website/database, etc., how would I ever know, until my account has already been emptied?

When I brought this to the attention of the Plan Administrator, as expected, I got nothing. They referred me to the insurance company. After 3 months of back and forth with the insurance company, and the typical obfuscatory BS statements crafted by their legal department, all of which when translated, say, "just trust us" I am finally in the last stages of finalizing a procedure whereby no DISTRIBUTION may be made based on an on-line request. My account will be flagged to only send out distribution forms to my address of record based upon a telephone request with a special "challenge" question.

Now, I realize that I can just roll the money out of there, but I'm wondering if this type of disclaimer is standard in the financial services industry? And it may seem like I'm being overly paranoid, but almost daily we read about major security breaches, etc., so I'm less trusting than I used to be.

Any observations?

[GMK]

I am finally in the last stages of finalizing a procedure whereby no DISTRIBUTION may be made based on an on-line request. My account will be flagged to only send out distribution forms to my address of record based upon a telephone request with a special "challenge" question.

I'm guessing that the disclaimer is common to most, if not all, such accounts, and I share your concerns about not knowing that my money is being stolen until after it is gone. (Paranoia strikes deep.)

I like your solution. Thanks. I plan to implement it for myself, as I am soonly to step into retirement world. Besides, my wife doesn't use the computer, so this provides a procedure that she will like for accessing the funds and when she later wants to access her survivor benefits (some day ... in the not too near future, we hope.)

[Kevin C]

We use a similar disclaimer.

Remember this one?

http://www.plansponsor.com/401k_Participant_at_Fault_in_Account_Withdrawal_Dispute.aspx

If that doesn't work, the case is Foster v. PPG Industries Inc., N.D. Okla., No. 06-CV-423-GKF-TLW.

[Belgarath]

Congratulations on your impending retirement!

Kevin - I had forgotten about this case. But as you can see, given my level of general distrust, if I had an ex (or KNOWINGLY soon-to-be ex, you can bet I would have taken precautions! Of course, one never knows, perhaps my spouse is secretly plotting about how to become an ex, after draining our accounts to run off with some young masseur (we don't have poolboys here in the frozen North - season is too short).

[kmhaab]

Thank you Lou S. and jpod!

Kelly

[Peter Gulia]

I'm curious: For a retirement plan that generally allows participants electronic access to one's account, does any recordkeeper allow an individual participant to instruct that she not have electronic access to her account?

[RatherBeGolfing]

I'm curious: For a retirement plan that generally allows participants electronic access to one's account, does any recordkeeper allow an individual participant to instruct that she not have electronic access to her account?

I'm not sure if they will let you not have electronic access, but if you never register there is no login info to steal right?

[Kevin C]

Not really. We set them up with a default password to start. But, you could login and set your security questions to something off the wall that you don't write down. You can't login later if you can't answer the security questions, unless you contact our office to get it reset.

It may be possible to completely remove a single participant's web access, but I wouldn't want to do it. We provide web access in part so they don't have to contact our office every time they want to look at their balance.