Distribution in error after break in service, rehire

[Guest taxpractor]

The following is the scenario: Participant terminates, 90 days later, is rehired by same company, different location , in another state. Several months after rehire, but in the same year, plan fudiciary makes distribution of full account balance as normally if term status, unbeknownst to the plan adminstrator. Later fact finding discovers term status trumps active when system has term and active under same soc sec number. Individual remains in plan to this day.

Would this be considered a prohibited transaction if plan documents do not allow in-service distributions? Participant received 1099R and is ok with tax and penalty on his end. Does not have the ability to pay any back at this point. If corrected, who would be expected to replace the funds ? Fudiciary service provider or adminstrator? Should the participant account balance be restored whole even after receiving cashout in full? A Significant dollar amount is involved.

Thanks for any help in advance.

[Guest Sabadee!]

Are you still within the timeframe to adopt a corrective amendment to allow for the in-service?