Retirement Plan Distributions for Incarcerated Persons

“We have a former employee who is incarcerated who has a balance in our ERISA 403(b) retirement plan. We initially thought he was a lost participant, but later found out he is in prison. Is he entitled to a benefit while incarcerated? Should we just send him paperwork regarding his retirement benefit like we would with any other employee?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

Prisoners are generally not eligible to receive many federal benefits, such as Social Security, while they are in prison; however, incarcerated participants/ beneficiaries/alternate payees have the same rights as any other participant/beneficiary/alternate payee with respect to retirement plan assets, with limited exceptions. Specifically, in cases of crimes involving to the retirement plan and situations where the prisoner killed a participant for whom the individual was a beneficiary/alternate payee, the Employee Retirement Income Security Act’s anti-alienation provision may not apply as provided in ERISA 204(d)(4). In addition, certain federal crimes to which the Mandatory Victims Restitution Act applies (e.g., fraud) has been applied to garnish certain prisoner’s pension benefits. Further, prisoners, like any other participant, can be subject to a qualified domestic relations order, or QDRO, which may reduce his or her retirement benefit.

Thus, the plan sponsor’s recordkeeper should send the same benefit info/distribution kit to the incarcerated individual as it would for any other plan participant, at his prison address as applicable. The incarcerated participant has the same distribution options as any other participant; however, you might want to check with counsel on the delay in informing the participant of the right to his benefit (due to the fact that you thought the participant was missing) and whether that conflicted with any timing requirements of ERISA or the Internal Revenue Code.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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