JDuns

An employee age 54 terminates in 1999 with an account balance of $2000. During 1999, the plan issues him a check for $1600 (his full account balance net of 20% withholding) which the employee never cashes. In January 2000, the plan issues a 1099R showing the distribution ($2000), withholding ($400) and that no exceptions to the 10% early withdrawal penalty apply. In December 2000, after attaining age age 55, the employee reappears and requests a replacement check. Which of the following responses do you think are permitted: (1) Leave the original 1099R alone and reissue the net check (and don't issue a new 1099R for that second check). (2) Amend the original 1099R to indicate a $400 distribution and $400 withholding actually made, issue a new check for $1240 and issue a new 1099R the following January indicating the $1600 distribution with $360 withholding and no longer subject to the 10% penalty. (3) Amend the original 1099R to indicate a $0 distribution but $400 withholding, issue a new check for $1600 (no withholding) and issue a new 1099R the following January indicating the $1600 distribution with no withholding or 10% penalty.

I had seen the referenced Q&As. I was concerned that Appendix B to Rev Proc 2000-16 (correction methods) provides 2 alternatives that would appear to apply in this situation: correction of other overpayment failures (2.05) or hardship distribution failures (2.07(2)). While it appears that the IRS histroically has accepted as appropriate correction an unsuccessful attempt to collect without making up the difference if the employee refuses to return the distribution (so long as a spouse's rights are not impacted), I was unsure if this analysis is still valid in light of the new rev proc. Thank you again for your help.

A plan allows hardship distributions of employee money only. A new TPA inadvertantly lets a few employees receive hardship distributions from both employer and employee money. (1) To correct this I understand that the plan can either (a) use walk-in cap and retroactively amend the plan to allow the withdrawals (the er doesn't like this option) or (B) collect the distribution from the employee. Are there other options that have been blessed by the IRS? (2) If the employee won't or can't pay, must the employer recontribute the distribution to the employee's account --giving the employee a windfall? (3) Finally, if the plan actually allowed hardship withdrawals from both er and ee money, wouldn't the employer be obligated to withhold 20% on the er money (unless it was rolled over) and 10% of the ee $ since 401(k) deferrals are not rollover eligible (unless the employee returned a form W-4P). Thank you for your help!