Form 1099-R for each participant who received a direct rollover or cash distribution during the taxable year. The IRS and state copy of the Form 1099-R will be mailed directly to the IRS and state government by Verisight Trust Company. Verisight Trust Company will also mail the participant’s copy to each participant no later than January 31st of the year following the calendar year in which the distribution occurred.
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FREQUENTLY ASKED QUESTIONS
Question 1: What are the distribution options under the plan for terminated participants?
Terminated participants have several options with respect to the distribution of their plan balances. When they leave the company, they will be given the opportunity to either roll over their balance to another retirement plan or Individual Retirement Account (IRA), or they may elect to receive a cash distribution. Keep in mind that a participant who elects a cash distribution will be required to pay taxes and any applicable penalties. Please refer to the section entitled Termination Distribution Instructions for step-by-step instructions on how to obtain the forms needed to initiate a distribution request (or, if applicable, see Online Distributions Instructions for details on our paperless/online method).
Question 2: How long will it take to process a distribution request?
To ensure accurate processing, the terminated participant can expect to receive his or her distribution within 10 business days from the date Verisight receives the completed distribution paperwork (or, if applicable, receives a paperless request using Online Distributions). This 10 business day period does not include mail, wire transfer or ACH transfer delivery time. Expedited delivery of distribution proceeds may be available for an additional fee. All checks, rollover or cash distributions, will be mailed to the participant’s home address unless specifically instructed to do otherwise.
Question 3: Can a participant maintain his or her account in the plan after termination of employment? In general, a participant can choose to keep his or her money in the plan provided the vested account balance is at least $5,000 (excluding rollovers). Provisions in your plan document may be more restrictive, however, so please refer to this document or contact your Relationship Manager for more precise information. Question 4: What is a “forced” distribution?
A “forced” distribution may occur if a terminated participant with less than $5,000 vested in his or her account has been notified to take a distribution from the plan but has not made an election as to the disposition of that account. Please note that an active employee may not be forced out of the plan. Provided you know that the participant received the notification and you have the participant’s current address (typically by sending the distribution paperwork by return receipt mail), you may “force” a
distribution after a reasonable period of time. If the account balance is under $1,000, a cash distribution may be processed and mandatory withholding will be applied. For terminated participants with vested account balances between $1,000 and $5,000, the Plan Administrator may establish an Automatic Rollover to an Individual Retirement Account (IRA) on behalf of the participant. Please contact your Relationship Manager to discuss the force out procedures.
Question 5: Can a participant take a partial distribution from the plan?
A participant who has terminated employment, retired, died, or become disabled can elect to take a distribution from the plan in full. In general, partial distributions are not allowed. See your Relationship Manager to discuss the provisions of your plan document.
Question 6: What about vesting?
The only accounts in your plan that are potentially subject to vesting are Employer Non-Elective contribution accounts (profit sharing or money purchase contributions, for example) and/or Employer Matching accounts. Other money types (employee deferral accounts (both pre-tax and Roth), employee rollover accounts, and employer “safe harbor,” for example) are not subject to a vesting schedule. Verisight will calculate the vested portion of each employee’s account balance based on the vesting schedule as prescribed in your plan document before any distribution check is released.
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Question 7: What tax liability will a participant incur at the end of the calendar year if a cash distribution is elected?
If a participant chooses to have plan benefits paid in cash, mandatory withholding will be credited against his or her tax owed at the end of the year. Withholding does not eliminate the potential need to pay additional taxes. The total tax liability plus applicable penalties owed on any cash distribution will depend upon the participant’s age and tax bracket at the time of the distribution.
Question 8: What effect does an outstanding participant loan have on a terminated participant’s distribution? If a participant terminates employment with an unpaid loan balance, he or she will need to know how the loan will be treated. His or her loan balance is due and payable on the date of termination, or no later than the end of the grace period (the end of the calendar quarter following the calendar quarter in which the date of termination falls). If the outstanding principal is not paid in full by the end of the grace period, the amount owed will be treated as a taxable distribution and a 10% early withdrawal penalty may apply. If the participant wishes to pay the loan off in full, he or she should be instructed to write a personal check for the outstanding principal. Please have the participant contact our Customer Services group at 888-401-5629 to obtain the correct outstanding loan balance.
Question 9: What is the tax due on a death benefit payable to a surviving spouse beneficiary? Non-spouse beneficiary?
If a participant passes away and has designated their surviving spouse as the beneficiary, the spouse beneficiary may elect to roll over the account balance to an Individual Retirement Account (IRA) or to another retirement plan. A non-spouse beneficiary may roll over the account balance to an “inherited IRA.” In so doing, the beneficiary can avoid current tax liability. Beneficiaries may also elect a cash distribution and pay the mandatory federal tax withholding at the time of distribution. No early withdrawal penalties will be applied to a death benefit paid in cash to any beneficiary.
Question 10: Can a beneficiary of a deceased participant elect to keep the account balance in the plan indefinitely?
In the event the beneficiary wants to keep the account balance in the plan, he or she may do so up to 5 years following the death of the participant. Your plan document language will govern when a death distribution must be paid out. Please check this document or contact your Relationship Manager for specific guidelines. Question 11: What will qualify a participant for a disability distribution?
In order to qualify for a disability distribution under the plan, a participant must be deemed “totally and permanently” disabled. The definition of what constitutes “total and permanent” disability can be found in your plan document. Please contact your Relationship Manager for additional guidance on the determination of a disability status.
Question 12: What do I do if I can’t find a terminated participant?
There are certain procedures that you will need to follow so that the Department of Labor is satisfied that you have made every attempt to find a “lost” participant. Verisight can perform this service for you upon your request. Please contact your Relationship Manager to discuss the procedures more thoroughly and explain the steps to take if a participant is truly “lost.”
Question 13: What do I do if a participant loses a distribution check?
Please contact your Relationship Manager and request a stop payment and reissue of the distribution check. Typically, stop payments and reissues may not be processed earlier than two weeks following the original issue date of the check. Verisight will need the participant’s name, mailing address, and payable instructions for the new check. If the distribution check was lost due to incorrect information provided by the participant, a stop payment fee will be applied. We instruct the participant to send us a check made payable to Verisight for the stop payment fee or the Plan Sponsor may choose to pay this fee or collect the money from the participant. Verisight cannot collect this fee from the participant’s account or from the distribution proceeds. After a request has been made to reissue, the new check will be mailed within 10 business days.