Terminated employee with undeposited match

[S. Weekley]

I have a terminated employee who was due an employer match after termination.  The entire participant account balance was distributed prior to the match deposit and the account closed.  There has been a lot of hassle trying to get an account reopened in order for  the match to be deposited and then distributed to the participant.  The broker is saying that the plan sponsor can just write the check directly to the participant and there is no reason to reopen the account.  I have searched and searched but cannot find any guidance on how to handle this.  Any thoughts or guidance would be appreciated.

[Lou S.]

It needs to run through the trust and he needs to receive a 1099-R. Ask the broker to put it in writing that he'll personally indemnify the Plan Sponsor for any all penalties that may arise from the Plan Sponsor Paying the participant directly outside the Plan.

I'm not sure why it's a problem reopening the account but you can open an account in the name of the Plan anywhere and pay it out from there.

 

[Bill Presson]

Agree with Lou. Then the employer needs to find a new investment advisor/recordkeeper.

[jpod]

Surprised that it would be a "hassle" because this should be a common occurrence for daily-valued plans, but I agree with Lou's suggestion in his last sentence if push comes to shove.  

[Bill Presson]

9 minutes ago, jpod said:

Surprised that it would be a "hassle" because this should be a common occurrence for daily-valued plans, but I agree with Lou's suggestion in his last sentence if push comes to shove.  

I'm guessing it is a plan with an individual brokerage account for each participant.

[jpod]

3 minutes ago, Bill Presson said:

I'm guessing it is a plan with an individual brokerage account for each participant.

Well in that case i would think it would take about 2 seconds (figuratively speaking) to re-open the account, or open a new one, whichever is simpler.

[Lou S.]

29 minutes ago, Bill Presson said:

I'm guessing it is a plan with an individual brokerage account for each participant.

And the broker doesn't want to go through the hassle of the paperwork for assets that are going to in and out of the plan and for which he's probably not getting paid. But that just goes to Bill's point to maybe find another advisor.

[Larry Starr]

7 hours ago, Lou S. said:

It needs to run through the trust and he needs to receive a 1099-R. Ask the broker to put it in writing that he'll personally indemnify the Plan Sponsor for any all penalties that may arise from the Plan Sponsor Paying the participant directly outside the Plan.

I'm not sure why it's a problem reopening the account but you can open an account in the name of the Plan anywhere and pay it out from there.

 

Agreed; it needs to run through the trust.  However, all they have to do is go to the bank and open a saving account in the name of the plan and then make the distribution from that account.  

[S. Weekley]

I was 99.9% positive that it needed to run through the trust but wanted to make sure I was not missing anything.  And I totally agree that the sponsor needs a new brokerage company.  It has been a real pain to deal with over the past several years!!!!!

[Sara Hotvedt]

I've found that many 403(b) vendors are very difficult to work with when it comes to this type of thing.  We've had this problem before, so we had the Plan Sponsor open a checking account in the Plan's name.  The additional owed match is deposited into that checking account and then a check is issued (less tax withholding) to the former employee.  We (as the TPA) prepare a 1099-R for that distribution after the end of the year.  I imagine this would also work for a 401(k) plan.

[Bri]

Obviously I'm 4 days late to the discussion (Mexico was nice) but Larry's got it spot on - just issue the check from a PLAN checking account rather than a SPONSOR checking account.