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On 3/15/2010, we did our safe harbor match of 3% across the board to every eligible employee who worked and met our requirements in 2009 even if they left during the year. There were three terminated employees which the pension plan never deposited in their accounts because they had withdrawn their funds but they never notified us of this issue. In 2014, when I was doing our bank reconciliation, I noticed one of the 401K funds withheld from a payroll was never deducted from our bank. When I contacted the pension plan and questioned if the funds were deposited into the employees' accounts they said yes and my boss verified everyone had their funds in their account for that payroll. After many months of emails and calls to verify this, we assumed the bank had made an error in our account and not the pension fund. In 2015, once again when we were doing the bank reconciliation, it was noted that the pension fund took out less then what was withheld from the employees' paychecks.l After many phone calls and emails, we were finally able to determine that the pension plan used the funds from the three former employees in 2010 which was sitting in a cash account to cover the two payrolls described above. All of this was done without our knowledge. We were not aware they had a cash balance with funds we submitted. In speaking with our accountant, they have agreed with us that we have to give the three former employees the funds they were entitled to in 2010. My question is how do we do this correctly? We don't know a way to have the monies go through our payroll as this was done in 2010 already. And the pension plan can only take funds from payroll. If we send checks to the former employees, is the whole amount taxable to them? Is there a way to get them the funds so it's not taxable until withdrawn?