Improper payout

[ombskid]

In 2006, plan sponsor pays former participant with a check from the trust written to the person for the 2004 year end balance. Doesn't tell TPA (lucky me) until now. No withholding and no 1099.

Is there a "proper" corrective procedure?

[SoCalActuary]

The 1099 issue and the withholding are simple tax penalties.

This is not necessarily an EPCRS issue. The additional issue is whether the correct

distribution was made. What should have been paid in 2006?

If it was higher, then you should also look at the required value in 2006, compute the required

withholding and pay it ASAP. There will be a penalty for late payment. The 20% withholding will

have to be paid based on the 2006 value.

If it turns out that 2006 x 80% is more than the 2004 value actually paid, then the employer won't

have to take money from their own pocket to fix the problem.

The 1099 should be issued for the full amount of the payment made, plus 25% of that value to show

the 20% withholding on the gross amount. There will also be a penalty for late filing of the 1099.

You may have a EPCRS issue if the participant did not sign valid election forms, including any potential

spousal rights if married.