State tax elected but not withheld

[BG5150]

Two participants took distributions in 2020.

The paperwork CLEARLY states that they wanted state tax withheld at 10% (New York).  The major carrier failed to withhold.  Participant only finds this out in February 2021 when they get the 1099-R.

The carrier told me that because NY doesn't have mandatory w/h, they just don't do it.  Even though the form, again, CLEARLY, has a section for it.

Does the participant have any recourse against the plan/carrier for failure to execute the instructions (in seemingly good order) of the account holder?

[EBECatty]

I have come across a similar issue, but in that case the distribution election form (albeit in fine print in an attachment to the election form itself) had a list of states where no income tax would be withheld. The logic was the same - if the state did not have mandatory withholding from DC plan distributions, even if the state taxed the distribution itself, nothing would be withheld. You may want to ensure you have all the distribution forms, tax notices, etc. 

[Belgarath]

The following is just some general blathering as random thoughts occur to me.

What recourse might you be talking about? Unless I'm misunderstanding, the participants just have to pay what they are otherwise required to pay, right? Granted that they might not be EXPECTING it at this time and it may be inconvenient, etc. - but they received the full distribution, so the state withholding that they WANTED withheld is still in their pockets, or is part of their new living room set that they are sitting on, etc.

They probably don't owe any interest, but if they did ('cause they didn't make any quarterly estimated payments if required by the State, or something like that) then perhaps they would have an argument, and I suppose other scenarios could be created. But I suspect that any recourse requiring legal action would likely be either unwarranted or far more expensive than the "damages."

[CuseFan]

Kind of in Belgarath's court here, the only possible damages incurred would be related to being under withheld on state taxes. I think they would have to have had substantial distributions for that to be the case. 

The obvious question/issue - and one I would make were I the carrier (not that I excuse them for poor service) - is how/why did the recipients only "discover" this only when getting their 1099? That is total BS. If I'm expecting a $10,000 payout and I know that 20% must be withheld for Federal taxes AND I ELECTED ANOTHER 10% (hello, McFly), then I'm also smart enough (I hope) to know that I should be getting a check for $7,000 and realize that something isn't quite right when they send me $8,000.

This lack of personal responsibility drives me nuts - like when a person elects a salary REDUCTION contribution but then doesn't notice (for a whole year even - c'mon McFly!) that their weekly (or whatever) pay did not go down.

Anyway, done pontificating, go 'Cuse, in the Sweet 16 baby!