Wrongful Distribution

[mariemonroe]

Is there a way to correct an operational error in which a distribution was made to someone who was not eligible to receive the distribution?

I have a situation in which a participant received distribution from a 401(k) plan but there was no distribution event under the plan. The participant has since rolled the distribution to an IRA. The participant is willing to roll the money back to the plan but I have my doubts whether this will "fix" the problem or something else must be done.

Any ideas?

[J. Bringhurst]

Check Revenue Procedure 2006-27 with regard to overpayments from defined contribution plans. At the very least, the plan must be made whole and in the position it would have been in had the failure not occurred (amount of distribution plus earnings must be put back into the Plan...even if the employer has to put it back) and participant must be informed that the distribution was not eligible for rollover.