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Partial Distributions No Longer Valid ?


KazzaDoom

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I have a 401k account that was setup thru a divorce QDRO order. I have been making periodic minor partial withdraws from this account for close to 4 years. However the latest request for partial distribution was denied. The plan provider is now claiming that the plan does not allow for partial distributions and they claim that the previous withdraws over the last few years have been an "oversight" on their part. They stated that this "plan rule" can be found in the Summary Plan Description ( which I promptly download from them ) and it DOES NOT spell out any rules regarding partial withdraws for plan participants. I was polite and I asked them to point out exactly where the rule was...but they could not. They then claimed that it is forbidden according to the adoption agreement with the plan administrator and they are legally bound to abide by it. My question is do I have any recourse action I can take ? 

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It is very possible that what they are telling you is true, but they should still be able to explain it to you.  The SPD will not necessarily spell out rules for partial withdrawals if the plan does not allow it, it is more common that it will spell out what you CAN do rather than what you cannot do.  So in their example, the SPD might not refer to partial withdrawals simply because the plan does not allow them.

I understand what they are saying but it sounds like they need to explain it better to you rather than telling you "tough luck".

Is there a reason you have chosen to keep the assets in the 401(k) plan rather than roll them to an IRA?  You would have full control in the IRA.  

 

 

 

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Depends

If in fact they did make a mistake in the past they are not required to keep making that mistake. 

It is also possible the plan was changed to no longer allow these kinds of payments but that should have generated a notice so that seems unlikely.  

The fact the Summary Plan Description (SPD) is silent doesn't bode well for you.  In plans the basic rule is the right to take money out has to be described.  So most of the time silence means you can't do it.  

If you took it all out and put it in an IRA you would have this kind of control  

If you really wish to push the idea you should go to the part of the SPD that spells out how you make a claim.  That should spell out how to make a written claim.  The plan would be obligated to either make the payment or make a written explanation why they are denying the payment.   These procedures are most often found towards the end of the SP.D. 

 

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As to the question of the plan being changed to no longer allowing these kinds of payments - I was told that was NOT the case and there has been no amendments to the plan.

The reason I am not wanting to move to IRA is because so far...the 401k QDRO  has covered me from having to pay the 10% penalty for early withdraw.

When requesting a withdraw in the past thru their website I have been selecting TERMINATION because that is what THEY told me to select because I am not nor have I ever been employed with that company. Like you stated the SPD spells out what you can do rather than what you can not do. The SPD clearly states a partial or total withdraw is allowed for termination.

I'm guessing the real issue is with the term termination...

Thanks for the response

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8 hours ago, RatherBeGolfing said:

A roll over to an IRA would not be a taxable transaction and not subject to a 10% excise tax.  

I had no idea there was no 10% penalty for withdraws from IRAs. Is this the case with both Traditional and Roth IRAs ?

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That is not what RatherBeGolfing stated.  The rollover from the plan to your IRA is not taxable.

RatherBeGolfing should address the loss of the QDRO exemption from the 10% penalty by rolling over to the IRA.  That is why you want to stay in the plan and take distributions as you like.  That game appears to be over.  The plan’s forms of distribution probably do not include “whenever you want” and it is not required to disclose the forms of distribution it does not have.

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I'm merely speculating on what 'may have happened'.  Obviously, the only way to know for sure is to read the document carefully.  The plan may have contained a provision which expressly allowed for partial lump sums.  During the PPA Restatement cycle (when the new adoption agreements were drafted), the language allowing for the partial lump sums may have been hard-coded into the plan's provisions (and not a check box).  If the person reading the plan isn't skilled enough to read the caveats, then they may miss it.  Unfortunately, this boils down to having someone read the document to account for the change. 
I can see a situation where years ago it was clear partial lump sums were allowed due to a specific box being checked.  Now, when there is no box, the individual at the plan provider's office is not reading the entire section of that adoption agreement.
My firm uses the DGEM document from ASCI.  For those of you using the same document, take a moment to look at how that section changed from EGTRRA to PPA.  This is merely one possibility of what you're dealing with.

In order to help us possibly help you, ask them who is there document provider.  If they say ASCi, then I'd be willing to bet that this is the issue.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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To get back to the primary point of the question you are entitled to a clear explanation of what distribution options are allowed so you can plan what is best of you within those parameters. 

I would keep asking questions until you get good answers.  If need be start going up the org chart. 

Like I said before the SPD has to describe a claims procedure if you want to get real formal about it.  They will either have to grant you your claim or give specific reason for a denial.  You can make a claim for a partial withdrawal and see what happens.  You just have to follow the procedures on how to make the written request.  Outside of time this doesn't cost you much to do.  

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Best "guess" as to what occurred: Many plans do not allow terminated (non-employee) participants to take partial distributions. Only Lump Sum distributions of the entire account are allowed. This makes sense, as the Plan Sponsor does not want to spend extra time/money on non-employee participants. 

Partial distributions were probably incorrectly allowed. Someone caught it and now you are being denied a partial distribution.  They should be able to send you the plan document (not SPD) page showing this.  The plan document rules in this situation, not the SPD.

If this is the case, then your best bet is to roll it to an IRA and take partial distributions from the IRA.     

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20 hours ago, RatherBeGolfing said:

A roll over to an IRA would not be a taxable transaction and not subject to a 10% excise tax.  

 

 

Uh....yeah, but subsequent distributions would be!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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7 hours ago, ESOP Guy said:

To get back to the primary point of the question you are entitled to a clear explanation of what distribution options are allowed so you can plan what is best of you within those parameters. 

I would keep asking questions until you get good answers.  If need be start going up the org chart. 

Like I said before the SPD has to describe a claims procedure if you want to get real formal about it.  They will either have to grant you your claim or give specific reason for a denial.  You can make a claim for a partial withdrawal and see what happens.  You just have to follow the procedures on how to make the written request.  Outside of time this doesn't cost you much to do.  

You also have the right to ask for a copy of the adoption agreement (where it appears they believe this issue is addressed) as well as the entire plan document; ask for them.

 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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