Distribution in excess of vested account balance

[Guest ewhitmore]

A plan paid out a terminee 100% of his account balance (paperwork did not go through our office), but he was only vested 40% in the employer contributions. The difference comes to about $11,000. We instructed the trustee to request the excess from the terminee. They have done so, but did not pursue it. We have also told them that if he will not give the money back, the plan sponsor needs to reimburse the plan for that amount. Their response, "what if we don't?"

So, does anyone know the ramifications of not putting the forfeiture back into the account? Qualification issue?

thank you

[Guest Pensions in Paradise]

Worst case - disqualification of the plan. Most likely scenario - DOL audit and the client eventually puts the money in after having spent $10,000 on attorney fees.

Also, point out to them that this is a breach of fiduciary duty, so the individual fiduciaries can be sued also. That might change their mind.