Be Weary of Retirement-Plan Checks That Show Up Unexpectedly
Originally published: 07.01.11 by Mike Coyne
Mishandling settlement payments could increase your liability.
It is often assumed that small companies don’t offer retirement-savings plans, but this is not always true. About 600,000 profit-sharing plans in the United States are maintained by companies with fewer than 100 employees. About 11 million employees participate in these plans. Unfortunately, recent events could lead to these well-meaning employers to unknowingly increase their liability because they offer such plans.
Over the past few years, investors and the Security and Exchange Commission have filed a number of class-action lawsuits against investment firms for excessive fees and the like. Recently, some of these lawsuits have settled, requiring mutual-fund companies and publicly traded companies to pay money to investors. Many of these investors are retirement plans, and we have seen the settlement checks sent in many different ways. For example, one settlement check was made payable and sent directly to the company. Another settlement check was made payable and sent to the home address of a participant in an individually directed retirement account.
Even if a check does not properly identify the retirement plan as the payee, if the check is for the plan, it is a plan asset and should be treated as such. Checks
Settlement checks should be deposited into the retirement plan account as soon as administratively feasible. If a check identifies a particular participant or participant account, then credit that check directly to that participant’s account. However, if the check does not identify a particular participant or participant account, then you should work with your accountant or third party administrator (the “TPA”) to develop a reasonable, prudent and non-discriminatory manner in which to allocate the check amount.
Keep in mind that since these checks are frequently required to be sent to you in connection with a government investigation or a class-action lawsuit, it is entirely likely that you'll have no idea why you are receiving the check — especially if, like many small companies, you have limited HR resources. If you get a check and do not know why he received it, check with your retirement plan advisers first. Chances are the check belongs to your retirement plan.
Michael P. Coyne is a founding partner of the law firm Waldheger Coyne, located in Cleveland, OH. For more information of the firm, visit: www.healthlaw.com or call 440.835.0600.
Articles by Mike Coyne
Spotting Legal Land Mines in Your Social Media Campaign
Your responsibility extends to third-party contributors such as customers and friends.
4 Ways To Avoid Discrimination Claims Related to Hiring
Hiring a Veteran Has Benefits
Address Texting-While-Driving Head On
This theory of liability applies when employees are acting within the scope of employment or for the benefit of employer.
Keep Corporate Debt Separate from Personal Debt
If you are operating your business in corporate form, it is important to follow formalities. You should sign contracts in your capacity as an officer, and contracts should always be between your corporation and the other party. You should never be named as a party to the contract.