Overdistibution to Plan Particpant

[Guest stevef]

We were recently informed by our plan administrator that a former employee was paid more than the amount he accrued in our companies profit sharing plan. A letter was sent to the plan participant notifying him of the error and we made a request that he return the overpaid money to the plan. The participant has not yet returned the assets.

A few questions:

1) What law(s) is this person breaking if he does not return the money

2) What is a reasonable amount of time before one takes legal action to get the funds returned.

thanks

[mbozek]

How did overpayment occur? Was it a clerical error or an error by the plan admin in determining the value of an investment? How long ago was the distribution paid? Was the participant given statements showing that the excess was included in his account? How much is the excess?

Legally, overpaying a particpant is regarded as unjust enrichment for which the plan can sue the participant for recovery in civil ct.

[Guest stevef]

Thanks for responding:

The Overpayment occured due to a clerical error. The plan participant requested a lump sum distribution. His last statment indicated he had X number of shares. The plan, in error, distributed $110,000 more than his shares were worth on the day they were withdrawn from the fund. ($66k was paid to the participant; $44k was sent to the IRS). The distribution occured on 9/23/05 we realized the error on 10/14 and sent the participant a letter detailing the overpayment and requested he return the funds (The IRS told us we could recover the overpayment when the plan files its tax return)

We have made numerous requests and he assured us he would return the proceeds.

It has now been 4 weeks and still no check.

[Guest Pensions in Paradise]

$110,000 overpayment!! You need to contact legal counsel NOW. And needless to say, you need to seriously examine your plan procedures to identify how this error occurred, and revise your procedures to ensure it does not happen again.

[Guest b2kates]

The last time we were in such a large amount situation; we did the following:

1. contact plan counsel to see if it was fiduciarily prudent to sue

2. notify Plan administrator of potential of claim

After threat of lawsuit fell on deaf ears. We contacted the local DA for a theft by deception claim. Also notified the participant that the excess was not eligible for rollover to IRA and detailed the 6% penalty for over contribution, further detailed in correspondence the revised 1099-R that would go to IRS

In our situation the overpayment was in excess of 250,000. Monies were returned promptly after contact from DA.

[Kirk Maldonado]

mbozek:

If the distributee hadn't kept the money segregated, would the Supreme Court decision Great West pose an obstacle to the plan's recovery? (I've not thought this through yet, so I am sincere when I ask this question.)

[Earl]

If you filed the 945 as if there was no withholding you could get that money back. I have never heard of the IRS catching it and fining a plan for failure to withhold and, even so, the penalty for that would be a lot less than the excess dist.

But maybe that is what you are talking about....