Stale Check with Plan Transfer

[MSN]

I've got a plan that transferred to us from another recordkeeper last year.  The prior recordkeeper just came to us stating that they had a stale check attributable to this plan and asking us to confirm wire instructions to move the funds to us.  This is the first time I've seen a recordkeeper attempt to transfer stale check assets to a successor provider, but maybe it's more common than I think.  Are other providers accepting stale checks in situations like this and how are you handling this?  Are there any issues rejecting the stale check being transferred? 

 

[RatherBeGolfing]

16 minutes ago, MSN said:

  Are other providers accepting stale checks in situations like this and how are you handling this?  Are there any issues rejecting the stale check being transferred? 

The stale check is a plan asset, I don't see how you can reject it.  I would request that the prior provider hand over whatever information I need to take care of the assets though.

I have had this happen before because some investment platforms have more than one step in a distribution.  Basically the provider takes the amount from the plans account, and makes the payment from a provider account.  As far as the plan can see, the payment "cleared" when removed from the plan account.  On the provider side, the payment from their account goes stale so the amount remains in that account rather than being returned to the plan account.  

This is one of the issues in the missing participant debate.  It gets even more fun when you add overlapping plan years and withholding...

 

[MSN]

EBSA is interested in reconnecting participants with their money.  I don't see how transferring an amount from "known" provider to "unknown" provider could be reasonably expected to achieve that aim.  It's most likely that a participant wouldn't even open mail from us.  It's probably more efficient to send the funds to the sponsor and have them send to the participant.  Is that an unreasonable position?

[RatherBeGolfing]

22 minutes ago, MSN said:

EBSA is interested in reconnecting participants with their money.  I don't see how transferring an amount from "known" provider to "unknown" provider could be reasonably expected to achieve that aim.  It's most likely that a participant wouldn't even open mail from us.  It's probably more efficient to send the funds to the sponsor and have them send to the participant.  Is that an unreasonable position?

The provider is really irrelevant.  It's a plan asset, and a plan problem.  How much of an issue depends on the details.  When was the original payment made, was there notice and consent or was it a forceout, were there taxs withheld, was it reported on a 5500, 1099, 945, 8955, etc...

It should be deposited to the trust, he participant should be default enrolled, and payment process should start over (and other steps as necessary). If participant does not receive your payment, go to your missing participant procedures.

I do not think that sending the check to the sponsor is reasonable as it should be handled on a plan level.

[JackS]

55 minutes ago, MSN said:

EBSA is interested in reconnecting participants with their money.  I don't see how transferring an amount from "known" provider to "unknown" provider could be reasonably expected to achieve that aim.  It's most likely that a participant wouldn't even open mail from us.  It's probably more efficient to send the funds to the sponsor and have them send to the participant.  Is that an unreasonable position?

I don't think it's unreasonable but I would not expect it to work.  If they knew where the EE was, he or she would have received the check in the first place.  Also, some people leave jobs under negative circumstances.  They m,ay be avoiding all mail or contact form the employer.  They may be more likley to accept sometyhing from you.  I'd put the money in the plan, set up an account for this person, report or re-report them on the SSA and do a participant search just like any other lost participant.    

[Pam Shoup]

I agree with JackS.  Have the money sent to the plan with all of the demographic data possible.  The amount that you receive will most likely be the amount after tax withholding so this amount will be your basis for this participant's future payout.  Verify this with the previous RK.  Follow your normal distribution procedures.  

[MSN]

Thanks all. 

Do you have the participant complete a new distribution request form or do you act on the former providers form?  If you require a new form, do you invest the money in the interim period or leave it uninvested?  Do you charge a distribution fee to cover the work associated with the redeposit and subsequent distribution in addition to the fee charged for the initial distribution? 

[JamesK]

As for information you might want or need, find out if this check has been reported as income.  The most likely answer is "yes" and code it appropriately so it is not taxed a second time.

[Pam Shoup]

To MSN:  Do new distribution paperwork with the updated 402(f) notice, invest the money in the interim, charge normal disribution fee as you would to a regular terminee.  Any other fees charged would most likely not be previously disclosed in a 404a-5 notice so I would stay away from charging other fees than your normal distribution fee and/or locator fee (if applicable).  

[FPGuy]

You might consider contacting Penchecks or Millinium Trust. Both firms specialize in this type of issue and will step into the Plan shoes to properly facilitate distribution. As a side note, both handy people to know when former participants go missing for normal or force-out distributions  or the like.