distribution used wrong val date

[Guest hershey]

What would you say about this situation:

A participant was paid a distribution in May 2001 based upon valuation dated 12/31/99. Subsequently, the 2000 val was done, and administrator realized that due to losses in 2000, they paid out 50,000 too much.

The distribution was rolled over to an IRA. If the plan documents stated that payouts are based upon "last val date", must the IRA custodian return the overpayment claimed by the plan? Or, can the participant refuse to authorize any give-back, since it was based upon figures prepared by plan administrator?

If the participant is obligated to return the "overpayment", what happens if the funds lost money since they were rolled ino the IRA, and now are worth less than amount received. Does the participant still have to return the entire overpayment, or can it be adjusted for the loss?

If anyone has sources for the answer to this problem, they will be greatly appreciated. Thank you!

[stephen]

There have been cases settled where the participant was forced to repay the overpayment to the plan.

I don't remember the case name but I believe I read it on EBIA. It involved an obvious overpayment that the plan could document. Which it sounds like you can definately do in this case. You may be able to run a search on Benefitslink to find it.

I would think the participant would be required to repay only the $50,000 regardless of subsequent gains or losses in the IRA.

[Guest Bandb]

If the distribution was paid on the "last val date" as specified by the document, where is the mistake that needs correcting?

We might not all agree he was overpaid.

[Guest hershey]

Thanks for your replies. The cases cited by EBIA both seem to be overpayment situations where the participant had no real defensible position why not to return the money. I think my situation is different because:

a) in March 2001 the 12/31/2000 val hadn't yet been completed. The "last val" at that point was, in fact, 12/31/99; and if that's what the administrator offered to pay, perhaps the participant has a basis for keeping it; and

b) there's a potential breach of fiduciary duty in a plan that lost 40% of a particpant's account value.

Your input is appreciated!

[david rigby]

Hmmm. No attorney I, but charging a "breach of fiduciary duty" just because the account balance (I assume this is a DC plan) "lost 40%" seems a bit hasty.

[RCK]

I think that you need to refer to precedent in administration of the plan. We have an acquisition, that resulted in an annually valued plan hitting my desk. If we got a distribution request in March 2001, and the 12/31/2000 valuation had not been completed yet, then we would have had to wait for it to be done.

Your comment that "the administrator offered to pay" concerns me. The adminstration of qualified plans is not something that is to be negotiated--it is to be done in accordance with the rules of the plan. In particular here, it sounds like the administrator did something special for a person who progbably had a larger than average account.