Ineligible Rollover Reversal; Penalties?!

[Guest confused911]

I'll try to make this as brief as possible. We have a client who had an annuity for her 403(b) salary deferrals through her school. In February 2001, her investment advisor rolled that annuity contract into a traditional IRA and everyone apparently signed off on it: the securities firm and the plan administrator. The problem is, she did not have a triggering event to make the rollover eligible. We have finally figured this all out and we have established her a new 403b. In the meantime, her IRA has been receiving her pre-tax salary deferred contributions as IRA contributions. We want to do a rollover reversal, but I need to know for my client what kind of penalties we may be looking at. Our boker/dealer has been suggesting a letter of instruction signed by the client and the employer-but their main focus in the language is that they are not held responsible for any potential penalties (but no one can tell me what those penalties may be!). Also, this client will be retiring in July, so I don't even know if it is worth it. Maybe we just leave it alone and hope no one notices? This seems to be a very unusual situation, so any advice would be helpful, Thanks!

[Guest Joel Lee]

Section 403(b)8 is the rollover provision for 403bs. Prior to 1993 this section required triggering events in order for distributions to be granted rollover treatment. These triggering events were repealed with the UCA of 1992. See section 403(b) 8 prior and subsequent to the UCA '92. In my view one does not need a triggering event in order to effectuate a rollover distribution.