Withholding Election on ADP Refund?

[Gilmore]

My apologies if this has previously been covered.

It is my understanding that 10% withholding is the default on ADP refund distributions, as a non-periodic payment.  Most of the recordkeepers we work allow the participant to elect the default, no withholding, or withhold an amount other than 10%.

My question is, is the Plan required to allow the participant to make an election? 

We are working with a new recordkeeper whose process for refund distributions is a spreadsheet that has no option for withholding.  Upon questioning they have responded that 10% applies with no other options for withholding.

Thanks very much.

[Larry Starr]

40 minutes ago, Gilmore said:

My apologies if this has previously been covered.

It is my understanding that 10% withholding is the default on ADP refund distributions, as a non-periodic payment.  Most of the recordkeepers we work allow the participant to elect the default, no withholding, or withhold an amount other than 10%.

My question is, is the Plan required to allow the participant to make an election? 

We are working with a new recordkeeper whose process for refund distributions is a spreadsheet that has no option for withholding.  Upon questioning they have responded that 10% applies with no other options for withholding.

Thanks very much.

We, of course, will withhold at whatever rate they want for the federal withholding.  But can the plan restrict it to 10%? I did not do the research, but I'm pretty sure the answer is no and the recordkeeper might be violating Federal law if they don't comply with what was requested on the W-4P. The  participant can elect zero withholding with a properly filled out W4-P, or more than 10% if they want.  Here is from the W-4P instruction; I think the highlighted last sentence requires compliance:

Purpose of form. Form W‐4P is for U.S. citizens, resident aliens, or their estates who are recipients of pensions, annuities (including commercial annuities), and certain other deferred compensation. Use Form W‐4P to tell payers the correct amount of federal income tax to withhold from your payment(s).