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Small s.h. 401(k) going to arbitration, former employee requesting money


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A plan sponsor had a former employee embezzle funds. It appears as if phony accounts MAY have been set up in their 401(k) to allow this employee to have access to additional money. One of the participants(not the embezzler) with an account in question is requesting his money and submitted distribution paperwork in August 16. The plan sponsor ignored the request and the distribution request expired in November. The plan sponsor did not provide the former employee written notice regarding the plan going into arbitration and the fact that his account is under scrutiny. The former employee has since submitted another request for distribution. Should the Plan Sponsor provide written notification now or should alternative action be taken (EPCRS)?

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So are you saying there isn't enough money in the plan now?

If so, why not just pay the person? Has the account balance gone down or up since when it should have been paid? If up, no harm no foul in my mind. If down maybe a making the person whole is in order.

If not, that will require some thought.

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Thank you for responding.

There is plenty of money in the plan, but there may be too much which is the problem.

There are a couple of participant accounts which may be over funded due to the bookkeeper who embezzled. Apparently she was establishing extra accounts in order to access them and request refunds at a later time. The plan sponsor seems to think that a couple of these participants who are now terminated did not actually defer as much into their account as their balances would lead you to believe. Therefore, if they pay them out the money is gone or at least much more difficult to recoup if in fact fraud was committed.

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