Former participant sort of never received distributions after attaining NRA

[Tedterrific]

Former employee attained NRA 65 a few years ago. She never received any distributions maybe*. She was a participant in a DB plan and 401k plan. Plan sponsor says they paid a monthly benefit once she reached age 65 based on 50% joint and survivor. But checks were never cashed and they assumed she was dead. She is now asking for a lump sum payment as she insists she asked for this to be paid at NRA when she terminated employment several years previously. What is she entitled to now?

* Employer is a large insurance company that obviously has vast experience administering qualified plans, including their own. Employer insists she was contacted by mail but never responded. So it’s possible some fault for all this lies with the former employee. Nevertheless she should be entitled to something, yes? She has communicated she would accept the lump sums determined as of her NRA without additional earnings. But I’m not sure plan administrator can unilaterally approve that. 

So what does she get? Can she contact DOL to expedite resolving this?

[david rigby]

Assuming your facts presented are complete (not being snarky, many postings here are "too brief"), she gets re-instated in the DB plan and offered whatever payment options the plan includes.  The plan might not offer a lump sum option.

BTW, if she was "...paid a monthly benefit..." and "...checks were never cashed...", that implies she (or someone) made an election to commence and also communicated a correct mailing address.  Forgive me, but I'm suspicious; maybe the EE ignored the requests to complete an election form?  First question might be, "What happened with the 401(k) plan?"

[Lou S.]

How long has this been going on? Were taxes withheld from the payments (of the uncashed checks)? Have 1099-Rs been issues? And as David asks does the plan allow for lump sum withdrawals and where did the 401(k) payments go?

 

[Alonzo Church]

This is complicated -- but, at the very least, the participant is entitled to a single payment from the db plan equal to all the payments she should have received, plus interest. 

Everything else depends on the provisions of the plans involved. I have a feeling a lump sum was not available from the pension, so there was never a valid election, and the pension started paying out in the default form (and the checks were never cashed).

[Jakyasar]

As Lou S said, how long has this been going on? If for a while, no one noticed that the withdrawals were not made when the plan's annual asset reconciliation was done?

Also, for the J&S 50%, was beneficiary's date of birth was provided?

As others said, possibly no lump sum option?

[Tedterrific]

This has apparently been “going on” for a few years. I’m assuming they started the monthly payments from the DB based on the default 50% J&S and husbands DOB. 
 

and just to add to the confusion they just got a notice from IRS on undeclared income for the uncashed checks. I would think 1099s had to have been issued even if the checks weren’t cashed? Most of this might be the fault of the participant. Though I thought administrator would have sent something by certified mail return receipt at some point - maybe they did. Particularly since the cost of doing so is infinitesimal compared to size of plan. 

So to sum up - OY!

[Lou S.]

Does revenue ruling 2019-19 on uncashed participant checks help the Plan out at all in this situation, particularly if you can determine that the plan properly started paying a J&S benefit?

It may be a simple case of re-issuing the checks to the participant, possibly (probably) with interest. As it sounds like the plan may have followed procedures and likely also issued 1099-Rs.

Though they probably want to review and document their uncashed check policy for the future to avoid similar issues.

 

[Tedterrific]

I am more concerned about the impact on the former participant who is a friend. Additional facts I have just learned: NRA was in 2017. Plan was a cash balance plan. Plan administrator has records of communication asking for a benefit election. Nothing was received according to them so they issued checks on a default 50% J&S annuity. I do not think any checks were cashed. The administrator has agreed to reissue a check or checks for the missed monthly payments and to continue the monthly payments. They say that the form of distribution cannot be changed to a lump sum. 
 

so I think the only option is to get the past due checks and start cashing the monthly payments as they come in. The participant is a friend but I think she screwed up. Nothing else to be done, right?

[Alonzo Church]

I believe interest is due on those retroactive payments.