One plan sponsor learned the hard way: Orthopedic Associates is on the hook for a participant’s $770,000 in benefits that the plan wrongfully distributed to his ex-wife.
The Second Circuit Court of Appeals held that the plan must pay the participant all of his accrued benefits, despite the fact it already paid those same benefits to his ex-wife. The plan sponsor argued it didn’t have to pay the participant until his ex-wife repaid the plan in full. The court didn’t buy it: it ordered the plan to pay the benefits again, costing nearly $800,000 of plan assets (that will presumably be made up by another contribution from the plan sponsor).
Always make sure you distribute plan assets correctly–it may become expensive if you have to do it twice!