Is it o.k. to destroy the check and what about withholding in this sit

[John A]

A participant received a check for a distribution from a qualified plan. He did not cash the check and has been rehired. He would now like to destroy the check like he never got a distribution. Is this o.k.?

If it is o.k., what should be done about any withholding that was done from the distribution?

[KIP KRAUS]

Has the 60-day rollover period expired? If so, I'd say the participant is stuck with a taxable distribution. If not, it depends on whether the trust will cancel payment on the check and amend any tax filing already done.

On the other had, if the participant is still within the rollover period, he/she could sign the check over to the plan as a rollover and include the 20% witheld taxes and take the tax deduction on his/her income tax return. This is me just thinking out loud. Any body else want to touch this?

[david rigby]

Hate to be picky, but does the plan have any assistance to offer in this area?

For example, if the plan states that no participant will be paid prior to a severance of employment (exception for 70-1/2 of course), AND the EE was rehired before the check was processed, then you may have a good case for saying the participant was not "eligible" for any distribution. I do not expect the plan to specifically address this type of circumstance, but it would not hurt to review such provisions. Also, check to see if there is a precedent.

[Fredman]

Check the document. Like pax sez, if he was rehired before the check was cut, there's an argument to be made to destroy the check.

Otherwise, I think I would treat this like any other rehire situation. Check the document for a break in service rule. Some plans do NOT allow for rehires to payback their distribution. Others will allow the participant to payback their portion and receive any forfeitures left.

If it turns out to be a payback situation the participant can cash the check and repay the distribution (and make-up the withholding).

If the participant repays the distribution, the tax reporting should not change. If you destroy the check, then you should also destroy the tax reporting.