Overriding Vesting

[khn]

This is a new one... a plan received a letter from an attorney for a disgruntled ex-participant demanding the employer vest his match 100%.  The employer told him they must operate the plan in accordance with the plan document and provided him a copy of the SPD, but the attorney continues to ask for proof that they can't do it. Any ideas for other documentations? We can't find anything specifically citing that overriding vesting for 1 participant is prohibited.

[Lou S.]

Send him a letter denying his claims review request for 100% vesting?

[My 2 cents]

16 minutes ago, Lou S. said:

Send him a letter denying his claims review request for 100% vesting?

Sounds good to me.  Speaking as a non-lawyer, I would think that just because someone's lawyer demands something does not put the burden on the recipient to either comply or to point to specific legislative or regulatory citations saying why it cannot be done.  Just point to the plan provision that keeps the match from being 100% vested and tell them to go pound sand.  The question is not "why can't you do it?" as much as "why should we?".  Mere disgruntlement does not create a non-frivolous cause of action or otherwise compel plan sponsors to create exceptions.

[duckthing]

26 minutes ago, khn said:

We can't find anything specifically citing that overriding vesting for 1 participant is prohibited.

I don't know that you will. Ordinarily a plan sponsor would only conceivably want to do this for an HCE, in which case it would fail benefits, rights, and features testing so would not require a specific prohibition. I think the above answers are spot on. Without knowing how much money hangs in the balance, my guess is the attorney's fees to appeal a denial would eat that up pretty quickly.

(Alternate, not-at-all-serious suggestion: determine the amount subject to forfeiture under his current vesting percentage, then have the sponsor inform his attorney that this amount will be the fee, payable by him, to amend the plan document in accordance with his wishes.)

[My 2 cents]

1 minute ago, duckthing said:

I don't know that you will. Ordinarily a plan sponsor would only conceivably want to do this for an HCE, in which case it would fail benefits, rights, and features testing so would not require a specific prohibition. I think the above answers are spot on. Without knowing how much money hangs in the balance, my guess is the attorney's fees to appeal a denial would eat that up pretty quickly.

(Alternate, not-at-all-serious suggestion: determine the amount subject to forfeiture under his current vesting percentage, then have the sponsor inform his attorney that this amount will be the fee, payable by him, to amend the plan document in accordance with his wishes.)

Better make that 3 times the amount that would otherwise be forfeited, plus something to cover the extra amounts you might have to pay other similarly situated participants (without regard to their degree of disgruntlement)!

If any potential litigation would be as frivolous as this sounds, your attorney's fees may have to be paid by the disgruntled former employee.

[MoJo]

Just say no.  It's their burden to prove that they have a "legal" reason to claim 100% vesting, otherwise, just ignore them.

We often get people (including lawyers) who claim that if they don't get their way, they are going to sue!  My response is, "OK.  Please copy me on the complaint when filed so we can immediately respond." 

Never had one follow through on it.

[TPAJake]

Seriously, tell him to go fly a kite--That's not how qualified plans work

[ESOP Guy]

If you want to give them an answer besides the one noted above which would be my preferred answers it seems like the reason is because an operational error would disqualify a plan.

So tell them a plan has to follow the terms of the plan and failure to do so would mean the plan is no longer a tax qualified plan under the tax code.  To agree to an operational error by a fiduciary makes the fiduciary liable for damages done to the rest of the participants. 

[david rigby]

Well ...... could there be anything else at issue? 

Such as a possible partial termination? Any relevant collective bargaining agreement?

Failing any special situations, the advice above is correct.  Just make sure you follow the plan's procedures related to claims and/or appeals.

 

[Peter Gulia]

David Rigby's point is most important:  Be picture-perfect about following the plan's claims procedure (and double-checking that the procedure conforms to ERISA section 503).

[mstick]

Facetiously: Send the lawyer a hard copy of the Code (along with a bill for same), with a nice note that between the enclosed and the copy of the SPD previously sent should provide all the information required as to why the change can not be done.

[My 2 cents]

8 minutes ago, mstick said:

Facetiously: Send the lawyer a hard copy of the Code (along with a bill for same), with a nice note that between the enclosed and the copy of the SPD previously sent should provide all the information required as to why the change can not be done.

The problem with this suggestion is that it probably could be done, but the sponsor does not want to do it.  Nothing to stop the sponsor from amending the plan to make matches 100% vested immediately.  The key point is that the plan administrator gets to refuse categorically to give this employee, however disgruntled, anything to which he or she is not already entitled, even if he or she was able to find an attorney willing to threaten them.  Perhaps the plan administrator should ask the attorney to provide a cite that would give the client's demands any legitimacy.  Threats of litigation don't, by themselves, create a reason to give in.  The suit, if filed, would have to be against the plan, not the employer (who has no liability for benefit claims against the plan, after all), and there are serious consequences if a plan needlessly gives in and pays amounts to the participant to which the participant is not entitled.

[Roxie99]

In the claims denial letter, reply that the plan is subject to ERISA and ERISA Section 404(a)(1)(D) provides that the plan administrator is required to operate the plan in accordance with its terms.

[Kevin C]

22 hours ago, melba99 said:

In the claims denial letter, reply that the plan is subject to ERISA and ERISA Section 404(a)(1)(D) provides that the plan administrator is required to operate the plan in accordance with its terms.

And the same requirement should be included in the plan document in the section covering the duties of the Plan Administrator. 

[Below Ground]

Ask the lawyer to send you a written signed letter, defining why the Plan terms and related regulations should be ignored.  I did that once and the problem magically went away.