In this case, plaintiffs – a plan participant and plan sponsor of the 112 participant Mandli Communications 401(k) Plan -allege that the Plan’s trustee, American Trust, permitted an unauthorized distribution from the participant’s account in response to a request from an unknown party. According to documentation provided by the plaintiffs, American Trust operates as a plan fiduciary. In that role, American Trust is responsible for processing participant distribution forms from plan participants upon receipt in good order. The distribution in question was not processed in good order, as American Trust allegedly failed to employ protocols to ensure account security.
In February 2020, an unknown party contacted American Trust to request distribution paperwork, which was sent to an email address inconsistent with the participant’s profile or overnighted to an address other than what is listed in the participant’s profile. The completed form was sent to American Trust without the contact phone number on file. An electronic signature was inserted, which prompted American Trust to request a voided check for identity verification purposes, and to facilitate the transfer of funds to presumably, the participant’s checking account. Although the voided check reflected an account registered in the participant’s name, it was a newly established account based on the check numbers. These, and other flags, were allegedly not pursued by American Trust to verify the transaction request as legitimate. Further, American Trust failed to contact the participant at the address on record or at the phone number on record, to communicate/verify the distribution request.
Although American Trust has aided in the recovery of the taxes withheld for the allegedly illegitimate distribution, it has placed responsibility for the recovery of the remaining distribution amount, plus earnings, on the plaintiff. American Trust has also declined to provide the plaintiff or plan sponsor copies of the documentation/distribution form, although requested by those respective parties.
www.asppa-net.org; January 15, 2021.
www.planadviser.com; January 15, 2021.