$1500 distribution made to Active Participant w/out trustee authorization

[Lori H]

A small 401(k) plan has a participant who went to the financial advisor to request a distribution of $1500 of her account. The advisor processed the request and no taxes were withheld. This was done without the trustees knowledge. Obviously the advisor was in error, but ultimately the trustee/plan administrator is at fault.

What options are there to the plan?

1) Retroactive amendment to allow for the distribution?

2) VCR filing?

3) Fire the advisor

Any thoughts? I looked back at about 18 months worth of topics but did not see a pertinent one.

[WDIK]

Although not strictly on point, the following thread does discuss some of the ramifications of an unauthorized distribution.

http://benefitslink.com/boards/index.php?showtopic=28915

[Guest Robin.Wolf]

You might want to read Rev. Proc. 2006-27. This sounds like an “operational failure” as defined in Section 5.02(2)(a). You might also look at Section 2.07(2) of Appendix B of Rev. Proc. 2006-27.

[Locust]

I'm curious how the payment could have been processed by the investment advisor without the trustee's knowledge? That sounds like a faulty procedure that should be changed. An investment advisor should not have authority to direct a payment.

[Lori H]

i think the plan administrator wants the participant to pay the $1500 back with interest.