MarZDoates Posted April 5, 2021 Share Posted April 5, 2021 Plan sponsor switched recordkeepers mid year. During first part of the year, participant took $100,000 covid distribution from recordkeeper before transfer to new recordkeeper. Participant went directly to new recordkeeper and requested $30,000 Covid Distribution. New R/K processed distribution without approval from plan sponsor or TPA. Recordkeeper relied on participant’s self certification. Am I correct that in order for the plan to remain in compliance, the $30,000 adjusted for earnings needs to be returned to the plan by the participant as an “overpayment”? (Participant not otherwise eligible for an in-service distribution. Not term’d. Not 59 ½.) Participant does not have the money to put back into the plan. Who is responsible for returning the money? QPA, QKA Link to comment Share on other sites More sharing options...
C. B. Zeller Posted April 6, 2021 Share Posted April 6, 2021 The plan is required to ask for the money back, but there is no mechanism allowing the plan to forcibly recoup it. However, the plan has a qualification issue created by allowing the participant to take an impermissible distribution. If I were the plan sponsor, I would be wanting the recordkeeper who allowed the distribution to pay for a VCP filing to correct the failure. Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Bill Presson Posted April 6, 2021 Share Posted April 6, 2021 2 hours ago, C. B. Zeller said: The plan is required to ask for the money back, but there is no mechanism allowing the plan to forcibly recoup it. However, the plan has a qualification issue created by allowing the participant to take an impermissible distribution. If I were the plan sponsor, I would be wanting the recordkeeper who allowed the distribution to pay for a VCP filing to correct the failure. Agreed. And the RK will probably cooperate since they are providing fiduciary services to the plan now. William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
Bri Posted April 6, 2021 Share Posted April 6, 2021 And I suppose the contract with the recordkeeper will spell out exactly where their fault would lie in relying on the participant without trustee authorization, too. Bill Presson and MarZDoates 2 Link to comment Share on other sites More sharing options...
MarZDoates Posted April 8, 2021 Author Share Posted April 8, 2021 Thanks everyone! QPA, QKA Link to comment Share on other sites More sharing options...
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