Haunted by Ghost of Participant Past

[vebaguru]

We terminated a profit sharing plan in 1985 or 1986. To the best of our knowledge and recollection, all participants were paid out then. We destroyed the records relative to the terminated plan in 1996. Now a former employee has presented a formal demand for a distribution he claims never to have received. How do we prove we paid him out? How does he prove we didn't? We are within the 30-day response period and will deny that he is due any benefits under the plan. Any experience on this?

[rcline46]

Welcome to the dark hole. If you had put the participant on an SS4 and removed him, the getting prior 5500s from the IRS might prove payment. How were payments made? Maybe the bank will have checks on micro fiche. Was a 1099 issued? The IRS should have copies of 1099s from back then. You could also have participant get copies of his 1040s if he took it in cash. He should have reported anyway. I would take the position that it is up to the participant to prove he did not get it by providing tax returns. Does the company have any files left?

Finally, let him sue. It would have to be in Federal Court.

[vebaguru]

Thank you for some excellent suggestions. Although I was the contract administrator at the time, I no longer have any recollection of whether the participant would have been on an SSA or not. Of course I recall the rules and would have put him on an SSA if the required period had elapsed after the participant left, but here we're considering a terminated plan. Certainly we would have done 1099s, and I didn't know IRS kept them that long (presumably on microfilm or microfiche). Since all payouts were made by check out of the trust account, I believe our best bet is in the bank records. Now, if we can just remember which bank the trust account was at . . .

Note: You and I read ERISA as establishing exclusive Federal jurisdiction over claims by participants and beneficiaries. Many state courts do not. They believe themselves entitled to review and decide any matter which is placed before them. The cost of removal in this case would be more than the participant's claim. My guess is that he will go to Small Claims Court where the judge hasn't even heard of ERISA!

[Kirk Maldonado]

Federal and state courts have concurrent jurisdiction over claims for benefits and QMCSOs. Federal courts have exclusive jurisdiction over all other claims arising under ERISA. ERISA Section 502(e).

[John A]

Does the former employee have evidence that he had a vested balance in the plan at one time?