Distribution Dilemma

A plan that we administer has 2 trustees and has a major mutual fund company as its recordkeeper. Both trustees have left the company (acrimoniously) for reasons that are not relevant here, but both of them have put in online requests for distributions from the plan. At this point, the company has not yet named new trustees, and the old trustees remain on the recordkeeper contract, and would be the ones responsible for "approving" the withdrawals on the recordkeeper website.

Trying to figure out whether, as the TPA, to approve the withdrawals, and let the now terminated trustees approve them. Would there be some legal recourse from the plan sponsor as to why we allowed these funds to be distributed, even though they cannot be assigned?

Thanks for any replies.

One cannot confidently answer your questions without reading the several agreements involved: (at least) the TPA’s service agreement, the recordkeeper’s service agreement, the custodian’s service agreement, the trustees’ agreement, and the documents governing the plan.

If you are the TPA, consider starting with the TPA’s service agreement and how much or how little it obligates the TPA to do, and how much or how little protection the agreement provides for relying on others’ instructions.

Also, one might read the documents, especially the trustees’ agreement, to discern whether ending one’s employment with the employer that appointed the trustee results in a resignation or removal from the plan trusteeship (or did nothing to change a trusteeship). A trust agreement might include or lack such a provision.

There can be risks—regarding the employer, the administrator, a trustee, a participant, and a participant’s spouse or other beneficiary—for (either) processing a claim that was not properly approved, or failing to process a claim that was properly approved.

The last 6 words threw me.  Are the distributions not in accordance with plan terms?

They would be in accordance with plan terms, as both trustees are now terminated from the company.

Given a potential dispute, as a non-discretionary ministerial service provider, we would refer the matter back to the plan sponsor - who is generally still a fiduciary.  What is on the contract with the recordkeeper is irrelevant, when the parties know that there is a potential issue (not saying there is, but we would *NOT* make the call when the trustees are no longer employed (especially under "acrimonious" circumstances)).  Leave the decision to a *fiduciary*.

And, if the trustees engaged in malfeasance with respect to the plan, their balances can actually be attached to make the plan whole.  Have a situation like that right now - where the former CEO/plan fiduciary of the former company (it did not survive) did not deposit money into the plan from salary deferrals (and otherwise "allegedly" embezzled from the company.  Can't help the company, but there may be a recovery for the plan (and the DOL is involved).

No malfeasance by the trustees; all monies are where they belong.

11 minutes ago, bzorc said:

No malfeasance by the trustees; all monies are where they belong.

Still, it's a fiduciary decision as to how to proceed.

May have to get into the weeds of the trust agreement, too - can one trustee act on behalf of all, does there need to be unanimity?  Would the sponsor appoint a new trustee from among its current employees, but how long does a trustee "on the way out" retain the position?  How soon will the recordkeeper be alerted if there has been a change at trustee.  Ah, paperwork.....

5 hours ago, bzorc said:

A plan that we administer has 2 trustees and has a major mutual fund company as its recordkeeper. Both trustees have left the company (acrimoniously) for reasons that are not relevant here, but both of them have put in online requests for distributions from the plan. At this point, the company has not yet named new trustees, and the old trustees remain on the recordkeeper contract, and would be the ones responsible for "approving" the withdrawals on the recordkeeper website.

Trying to figure out whether, as the TPA, to approve the withdrawals, and let the now terminated trustees approve them. Would there be some legal recourse from the plan sponsor as to why we allowed these funds to be distributed, even though they cannot be assigned?

Thanks for any replies.

 

I get the recordkeeper tends to want the TPA to "approve" the payment in the sense you think it is complete and accurate....

I would stay out of the approving business in the sense making the go/no go decision. 

As others have said get someone at the plan sponsor to put in writing to pay or not pay these people.  If they can't or won't do that maybe they will final solve the issue of no trustee that is an employee.  

I am pretty sure my bosses would back me if I told them I am not going on the recordkeeper's website and saying pay these people without written direction from the plan sponsor.  

Totally agree with everyone above that to reach any real conclusion, a full review of the documents would be required. However:

*Unless they resigned or were removed by the employer, the two individuals in question are probably still the trustees.

* You should identify who is the plan "administrator" or "administrator" under the document. This person is usually the company itself, but could be a "committee," but this person or body under most plan documents would have greater authority to approve a distribution than the trustees. Unless the plan administrator is the two individuals who are trustees, I would see approval for the distributions from the plan administrator.

* I would also identify who under the plan document has the authority to remove and appoint trustees. Almost certainly it is the company, e.g. if a corporation the board, if a partnership the Managing Partner or Management Committee. I would inform that person or body that they should consider that two departed individual who are seeking distributions are the plan's trustees and that they should consider appointing new trustees.

* If you do bullets two and three above simultaneously, you may find out pretty quickly whether, aside from legal issues, making the distributions will be controversial.

* Most likely as the TPA you are not required to take any controversial actions.

* Remember, distributions generally must be made "as soon as administratively feasible." The circumstances you describe should impact the timeframe of administrative feasibility here.