ex-spouse holding up plan term - ideas?

[AlbanyConsultant]

Participant P died - he was the brother of the plan sponsor.  The plan is terminating, and all of P's beneficiaries have been paid out except for his minor child... because the ex-spouse is not completing any paperwork.  The product platform says that the child's parent is the only person who can execute any paperwork for the child.  Sure, I've got one or two other non-responsive participants who can be rolled to IRAs, but the platform says that since this has to go to an Inherited IRA, it can't be forced like the others, and that requires a signature.  The plan sponsor has tried to contact the ex-spouse/mother via mail and through a grandmother, but has gotten no response.  I don't know the situation well enough to try and speculate as to why there is no movement.  And we're talking about $50K.

Besides "hire a lawyer", is there anything else the plan sponsor can do?  Thanks.

[ESOP Guy]

I would challenge them to prove this can't be forced out to an IRA like any  other payment in a plan termination.  I am not aware of any such rule/law. 

I would add the platform isn't supposed to have the power to overrule the plan sponsor and plan administrator (PA) unless they are one PA or trustee.  There job it to take directions from the PA/sponsor and trustee. 

[Peter Gulia]

A plan’s administrator might read carefully the governing documents’ provisions about a distribution to a beneficiary who is not yet an adult.  Typical provisions permit paying a minor’s conservator or guardian, including a natural guardian (a parent).  But a provision of that kind does not necessarily command paying such a fiduciary.  Or if it does, there might be little or no constraint on a plan amendment.

 

Also, a plan’s administrator might read carefully the governing documents’ provisions to check whether the plan’s termination undoes provisions that otherwise might have required a distributee’s consent to a distribution.

 

If—after exhausting loyal, obedient, and prudent efforts to get the beneficiary’s choice about whether the beneficiary prefers money or a rollover—the beneficiary has not specified his or her choice, a plan’s administrator might obey the plan’s provisions (including recent amendments).

 

What does the plan provide for a situation in which an adult beneficiary, after due notice, fails to specify the beneficiary’s choice between money and a rollover? 

 

Does anything in the plan’s governing document vary that provision regarding a minor beneficiary?

[Larry Starr]

5 hours ago, AlbanyConsultant said:

Participant P died - he was the brother of the plan sponsor.  The plan is terminating, and all of P's beneficiaries have been paid out except for his minor child... because the ex-spouse is not completing any paperwork.  The product platform says that the child's parent is the only person who can execute any paperwork for the child.  Sure, I've got one or two other non-responsive participants who can be rolled to IRAs, but the platform says that since this has to go to an Inherited IRA, it can't be forced like the others, and that requires a signature.  The plan sponsor has tried to contact the ex-spouse/mother via mail and through a grandmother, but has gotten no response.  I don't know the situation well enough to try and speculate as to why there is no movement.  And we're talking about $50K.

Besides "hire a lawyer", is there anything else the plan sponsor can do?  Thanks.

We are just finishing a termination of a plan that should have been completed a number of years ago but the platform (Voya) did not deal with the plan sponsor appropriately and a whole bunch of people with relatively small amounts never responded.  We were brought in to see if we could fix it.  We did.  This might help your situation: the platform was instructed by the sponsor to sell all of the assets and provide a check to the trustee for the full amount.  The trustee gets the check made out to the trustee, endorses it over to us, we deposit it in our account and then send a check for that amount to the IRA custodian for rollovers with a spreadsheet for all the participant info and the final 5500 can now be done.  Check is made out to us because otherwise there is the difficulty of how the trustee checks the check made out to her to be converted into a check made out to the IRA rollover company.  We are preparing all the 1099Rs. 

Perhaps you can do the same thing to get the platform out of the situation.  

[Mike Preston]

Doesn't this create a fiduciary issue?

[Larry Starr]

On 7/19/2020 at 9:14 PM, Mike Preston said:

Doesn't this create a fiduciary issue?

What issue?  For us?  It's an administrative process; nothing fiduciary about it.  We are just facilitating the check, just as the bank would do if they weren't so f'in stupid!

[Mike Preston]

35 minutes ago, Larry Starr said:

What issue?  For us?  It's an administrative process; nothing fiduciary about it.  We are just facilitating the check, just as the bank would do if they weren't so f'in stupid!

Seems like there is a moment or two where the plan's assets are in a bank account over which you, as a service provider, have complete control.  I can see the argument if the funds are no longer plan assets (as they would be if they were tax withholding). In fact we use a similar construct to facilitate the payment of tax withholding - both state and federal.  But I take the position that those funds belong to the taxing authority and not the plan so they aren't plan assets.

[Bird]

17 hours ago, Mike Preston said:

In fact we use a similar construct to facilitate the payment of tax withholding - both state and federal.  But I take the position that those funds belong to the taxing authority and not the plan so they aren't plan assets.

Us too.  And I will "admit" that when all else fails, we have run a payment to a participant thru that account, as Larry suggests, but I'd rather not for the reason you mention.

[Larry Starr]

On 7/22/2020 at 9:34 AM, Bird said:

Us too.  And I will "admit" that when all else fails, we have run a payment to a participant thru that account, as Larry suggests, but I'd rather not for the reason you mention.

I agree; our withholding account is money that already belongs to the gov and not the plan, but every once in a while, as you note "when all else fails", I'm not against doing it this way.  It sits in that account for all of about 5 minutes.