Rollover IRA accepted cash but sent stock certificates back to plan

[Guest LMalone]

Participant elected a direct rollover of his entire account, which included employer securities (publicly traded). The plan transferred the cash and stock directly to his designated IRA. The IRA accepted the cash but refused the stock and mailed the certificates back to the employer.

Total account balance exceeded $5000. Stock that was returned is less than $5000.

What can the employer do to fully distribute this account?

Thanks.

[Blinky the 3-eyed Fish]

I would start by contacting the IRA custodian. It is probably just a breach of procedure.

[Guest LMalone]

Took your advice and made a phone call. It turns out to be a CD- only IRA. So we are back to the question of what the employer can do now that the certificates have been returned. The participant is not responding to the employer's communications requesting that he establish another IRA that will hold the stock.

[Blinky the 3-eyed Fish]

When he elected to receive the rollover, is there any paperwork where he elected an in-kind transfer. If not, is there anything that would prevent you from selling the stock and rolling over the cash proceeds?

[Guest LMalone]

The Plan (which is a 401(k) plan) provides that the portion of the account balance that was invested in employer stock will be distributed in stock, no employer option to liquidate and roll the cash.

The plan may just have to hold it, which should not be a problem. The employer just wanted to be done with it.

Thanks.

[david rigby]

Having the ER hold onto the certificate sounds like a bad idea. Has ER sent certified/registered letter to EE requesting contact? Try some friendly leverage.

[Guest dmj1998]

Sounds to me like the participant made an uninformed decision.

LMalone - When you say the employer holds the certif., I'm assuming you mean that the receiving institution refused the deposit and the certif. was returned to the sending trust. It looks like your stuck with an account for the participant with stock only.

I would look into moving the plan into the 20th century and getting rid of the "stock only" clause, especially in light of the Enron mess. Since your plan doesn't allow a cashout, you may look at the possibility of issuing the certif. in the participant's name and make it a taxable event. Otherwise, you can amend the plan and force him out in the future.