IRA Custodian Refuses to Correct

[Guest cac1134]

The plan made a miscalculation and distributed benefits in excess of amount owed. In furtherance of its fiduciary duty to make the plan whole, the plan asked IRA custodian of rollover to adjust the balance and return the excess to the plan. Custodian refuses. What should be done?

[jpod]

Why not ask the participant for whom the excess distribution was made?

If the participant refuses, and the amount involved is large enough, the plan will have to sue the participant or write it off as a loss. Absent very unusual circumstances, the custodian should not do anything unless directed to do something by the participant or a judge.

[Guest mjb]

The IRA custodian has no obligation to follow instructions from the plan administrator. Its only obligation is to the IRA owner. Custodian will not return funds until the IRA owner gives instructions or court orders a return of the funds. When did the rollover to the IRA occur?

[maverick]

A bank I worked for would ask the participant to sign a consent authorizing the bank to request that the excess be returned by the IRA custodian. They then sent a hold harmless letter to the IRA custodian requesting return of the excess (plus earnings), and enclosed the participant's consent. IIRC, the bank also signature guaranteed its letter. Assuming the participant signed off, this worked most of the time.

[Appleby]

As a follow-up to mjb’s response… if the amount was credited to the IRA last year , the client have until October 15 of this year to remove the amount as a return of excess, and include net income attributable (NIA to the amount.

If it was credited to the IRA this year, the deadline is October 15 of next year.

The deadline is usually tax filing deadline including extensions. However individuals who file their return on time (or file for an extension) on time receive an automatic 6-months extension to correct.

If the amount was credited to the account before last year, it is removed as a return of excess ‘after- the deadline’, which means it is not accompanied by NIA.

The individual should follow the IRA custodian’s procedure for requesting a return of excess contribution, by submitting the required paperwork- which is typically a distribution request form.

[Appleby]

NIA defined here http://www.retirementdictionary.com/nia.htm , which includes a link to the formula used to calculate the amount