After-Tax Basis not kept.

[Guest John Sample]

We have taken over a plan with a 30 year history. At one time the plan allowed for after-tax contributions, before adding a 401(k) feature and doing away with the after-tax option. The prior recordkeeper will not provide us with an after-tax basis for those participants who still have after-tax balances. My gut feeling is that it was never properly record-kept, so there are no records.

My question is, who is ultimately responsible for this reporting and to what degree should the trustees pursue the information (obtain legal council)? The Trustees are very concerned that Participants may revert to them as not doing their job because these numbers are not available .

Is it ultimately the participant's responsibility to tell the IRS what's taxable and what's not taxable when they finally recieve a distribution?

Thank you.

[david rigby]

My hunch is that the employee will look to the plan sponsor to keep that data, assuming that the after-tax deductions were done properly in the first place. The prior recordkeeper may not be co-operative for a number of reeasons. For example, raising the question may have made them realize they made a mistake, or perhaps the prior TPA knew there was a problem earlier and did not follow-up. It is also possible that the employer did not report it properly to them.

There may also be a TPA prior to that one.

At any rate, the affected employees are going to be mad at somebody. Probably cannot assume the employees have records; not sure if a W-2 would help, but asking is better than ignoring the problem.

[Guest Jim Kais]

I have witnessed situations whereby the new recordkeeper assists the plan sponsor in recreating the basis using a standard formula that best reflects the investment experience for a given period of time. I do not believe that there has been a precedent set for this, but the negative impact of distributions being processed incorrectly with major tax implications may be less appealing than taking on this upfront research. Either way, it is a difficult situation to sort through especially if you are dealing with a large time horizon. As Pax states, it is an issue that needs attention and even though it may be the plan fiduciary's issue or the participant's issue, you will get the negative press as well if distributions are processed incorrectly. Good luck.