Participant to sign release before benefit is paid

Is it permissible to request a participant to sign a release that he accepts the calculation of his benefit from an ERISA pension benefit plan?

Long history short--the participant terminated employment over 15 years ago, and disappeared with a vested balance remaining in the Profit Sharing Plan. The employer could not locate the participant, and so after 5 breaks in service the employer decided to forfeit the entire account balance including the vested amount, with the understanding that the vested amount and earnings would need to be restored if this participant were found. This forfeited amount was used to reduce the employer contribution for the year it was forfeited, in accordance with the Plan provisions.

Fast-forward to last week--the employer was contacted by this missing participant.

We (third-party administration firm) have calculated the investment earnings on this benefit. I have suggested that the benefit statement show the amount of earnings by year, so that the participant understands how his final benefit amount has been determined. After all, the participant would have received a benefit statement each year had the employer been able to locate him.  The amount involved is under $10,000.

I am not comfortable that the employer wants to condition payment of this benefit on a release by the participant. The employer does not require any other participants receiving benefits to sign such a release. I'm not sure what they are concerned about.

Have any of you faced this situation? Thank you for any thoughts you care to share.

*If* he is the participant, he *is* entitled to the distribution under ERISA and conditioning that on anything I think would be verboten.  And, even if the participant signs it - it would basically b worthless as the plan administrator/fiduciary can not absolve themselves of their responsibility to properly account for hte participant's benefit - regardless of whether he was missing or not.

Also, not that it was a question asked - on what basis did the plan sponsor (and TPA) think it was OK to forfeit the vested balance after a 5-year break? You cannot force out benefits over $5,000 before normal retirement date so unless the participant was missing as of NRD when benefits were due to be paid, and the plan sponsor did a search, this never should have happened. I get that restoration with earnings makes the participant whole, which mitigates the damage I suppose - I assume this was not a participant directed account. It sounds like the plan sponsor knows this was not appropriate and is looking for the participant to essentially indemnify them. As MoJo said, can't be required and even if done voluntarily is likely not worth the paper upon which written.

Perhaps this is none of my business.  While the TPA is 

Quote

… not comfortable that the employer wants to condition payment of this benefit on a release …

that may have no bearing on the TPA's actions.  This could be an opportunity to re-read your service agreement.

We have a release built into our forms that says something to the effect of "pending payment...I release everyone from all claims."  Then it says that's not meant to deny anyone their rights.  So it's probably meaningless.  I think once someone objected and I said "so don't sign it" and we moved on.  It's left over from ages ago and probably should be deleted (although interestingly, the form is called "Release Agreement" so I'd have to rename it and that would be too much thought).

Anyway, I don't think I'd ask just one person to sign a release if it is not SOP.  

4 hours ago, DJL said:

Is it permissible to request a participant to sign a release that he accepts the calculation of his benefit from an ERISA pension benefit plan?

Long history short--the participant terminated employment over 15 years ago, and disappeared with a vested balance remaining in the Profit Sharing Plan. The employer could not locate the participant, and so after 5 breaks in service the employer decided to forfeit the entire account balance including the vested amount, with the understanding that the vested amount and earnings would need to be restored if this participant were found. This forfeited amount was used to reduce the employer contribution for the year it was forfeited, in accordance with the Plan provisions.

Fast-forward to last week--the employer was contacted by this missing participant.

We (third-party administration firm) have calculated the investment earnings on this benefit. I have suggested that the benefit statement show the amount of earnings by year, so that the participant understands how his final benefit amount has been determined. After all, the participant would have received a benefit statement each year had the employer been able to locate him.  The amount involved is under $10,000.

I am not comfortable that the employer wants to condition payment of this benefit on a release by the participant. The employer does not require any other participants receiving benefits to sign such a release. I'm not sure what they are concerned about.

Have any of you faced this situation? Thank you for any thoughts you care to share.

 

I agree with other answers as to the acceptability of a release: You cannot mandate a "release".  You can mandate the appropriate forms (waiver of annuity, for example, if it is a normal form of J&S as are all our plans), but beyond that, you cannot interfere with the participant's ERISA rights to a payment upon meeting the plan provisions for a distribution.

I get similar queries on QDROs I draft where the lawyer wants to put in signature lines for the participant and the alternate payee.  I do so if they insist (it is THEIR document that I prepare for the lawyer since we are now talking about state domestic law and since I am not an atty, I insist on preparing the document only for the attorney and it is technically their work product), but always point out that it is the JUDGE that needs to sign the order; the parties don't need to "agree" to it and sometimes one or the other DOESN'T agree to what the judge ordered and if a signature is required and they don't want to sign???????

Thank you for your thoughts. You have confirmed that my concerns are in the right direction.

We want to give a response to this employer so that he makes an informed decision.  We always suggest that legal counsel review such issues, but clients are not always willing to seek such advice since "you are the 'experts'" and "that's what we pay you for."

MoJo, CuseFan, Bird and Mr. Starr--I agree that ultimately this release is meaningless. 

CuseFan--the value at the time the vested benefit was forfeited was approximately $2500. I think the employer was trying to get lingering accounts closed to remove the servicing fees which are charged per participant account. We did suggest that the vested benefit be left in an account for this participant, but ultimately that's not what the employer chose to do. Yes, this Plan is not participant-directed.

Mr. Rigby--there is a point at which we would disagree with the employer's decision, and would not be able to continue to provide services.  At this point, we do not think that this decision impedes our ability to continue to provide services for the Plan.

Thank you all again.

I'd read the document very carefully.  It sounds to me like the amount being restored may be more than what the document calls for.

You can ask, and if you get it, it might help, at least tactically, if not in court, but as others have pointed out, it may not be enforceable. If there is any bona fide dispute or ambiguity about the amount owed or how to calculate it, a properly drafted release might be both appropriate and enforceable as a settlement of a disputed benefit claim. However, if the participant has not complained and the calculation has not gone through the plan's claims procedure, it probably should not be viewed as a settlement.

23 hours ago, Mike Preston said:

I'd read the document very carefully.  It sounds to me like the amount being restored may be more than what the document calls for.

I am with Mike here.  Here is what one base document one of my clients uses says about restoring a lost participant's account after they have been forfeited.  (There is a section of the document that tells when you can do the forfeiture)

Quote

(3) Subsequent restoration of forfeiture. If a lost Participant whose Account was forfeited thereafter at any time
but before the Plan has been terminated makes a claim for his/her forfeited Account, the Plan Administrator will restore the
forfeited Account to the same dollar amount as the amount forfeited, unadjusted for Earnings occurring subsequent to the
forfeiture. The Plan Administrator will make the restoration in the Plan Year in which the lost Participant makes the claim, first
from the amount, if any, of Participant forfeitures the Plan Administrator otherwise would allocate for the Plan Year, and
then from the amount or additional amount the Employer contributes to the Plan for the Plan Year. The Employer in
Appendix B may provide that the Plan Administrator will use Trust Fund Earnings for the Plan Year, if any, as a source of the
restoration, or may modify the order of priority of the sources of restoration described in the previous sentence. The Plan
Administrator will distribute the restored Account to the lost Participant not later than 60 days after the close of the Plan Year
in which the Plan Administrator restores the forfeited Account.

That is the most common way I read a lost participant forfeiture restore in the many plan documents I work with.  With ESOPs I mostly work with individual drafted plans not prototypes.  That is why I picked one of the few clients I have that uses a prototype and quoted the base document. 

If they went through the proper search to declare the person lost back in the day does the document say they get back earnings? 

Mr. Preston and ESOP Guy--thank you for your comments. Section 5.7 of the prototype, Location of Participant or Beneficiary Unknown, states "In the event a Participant or Beneficiary is located subsequent to his benefit being forfeited, such benefit shall be restored, adjusted for earnings."  There is no further guidance on how to adjust for earnings, such as reference to the earnings allocation section of the prototype. The client's auditor had suggested using the Department of Labor's online calculator for late deposits, even though this situation has nothing to do with late deposits. The client chose our recommendation to use the Plan's annual rate of return each year.

Thank you, Mr. Bailey. The client's main concern is the desire to avoid a dispute over the amount being paid, since it is a small amount and the document does not give specific guidance on how to adjust for earnings. I hope that providing the participant with a summary of the investment return by year will avoid a dispute.

In my experience, calculation of lost earnings means by any reasonable method.

In this case, I would try to calculate the plan's rate of return over all those years.

Using the DOL calculator, I put in $1,000 lost a/o 1/1/2005 with final payment today.  Result:  $1,052.28.

If the plan had a RoR greater than 5.2% over 15 years then I don't see how you could rely on the VFCP calcuator.

Lost Earnings

The DoL calc seems low.  overall, a 0.34% interest rate.  Doesn't seem to be much return over 15 years.

This was my reverse calc, and I'm pretty sure I'm correct, but let me know if I'm not:

1052 = 1000 x (1+x)^15  (divide both by 1,000)

ln 1.052 = 15 ln (1+x)

(ln 1.052) / 15 = ln (1+x)

.0034 = ln (1+x)

e^.0034 = 1 + x

1.0034 = 1 + x

x = .0034 = 0.34%

The "Amount Due" on the DOL calc is just the earnings - it does not include the principal!

What you actually have is 1052 = 1000 x ((1+x)^15 - 1)

I come up with an annual ROR of x=4.91%.

BG5150 and C.B.Zeller--thank you for your comments.  Based upon the Plan's actual return for each year, the earnings are approximately $3,600. (There were some great years of earnings, but there were also some years of negative earnings.)  So, the payment to the participant will be approximately $6,100.