Rollover Issue

[Guest meeh3704]

We have a situation where Company A acquires Company B and keeps many of Company B's employees. Company B decides to terminate its 401(k) plan. Employees of Company B moving to Company A are instructed to complete enrollment documentation if they want to participate in or rollover funds into Company A's plan. The employee in this scenario completes a rollover form and instructs Company B's TPA to do a direct rollover to Company A. Company A receives the rollover form and check and returns the check to Company B's TPA because the individual did not complete the enrollment form for Company A's 401(k) plan.

Nearly two years later, the employee receives a large tax bill from the IRS. He contacts Company A who refers him to Company B's TPA. Company B's TPA still had the check and decided to reissue a new check payable to the employee and Company A's trustee.

My question is whether Company A should touch this check? Put aside for now the question of how Company B terminated its plan with a large check still outstanding.

[ERISAnut]

This type of thing should NEVER happen. Now that it did, you must ascertain whether it was properly completed as a direct rollover, or not. If so, then it is a non-issue. It appears that it was not, otherwise the IRS would have no basis for requesting taxes.

The participant, in this event, has to make the argument to the IRS that he never had constructive receipt of the funds. The question becomes, then, how did he report this distribution on his taxes.

Given more details on how the original 1099-R was coded. We're lost without an accurate fact pattern.

[Guest Sieve]

I agree with -nut. There was no distribution to the employee--if check was intended to be a direct rollover and was made payable to Trustee of the new plan--so it's unclear how the 1099-R was properly coded as a distribution if these facts are correct.

For tax issue, correction should be through issuance of an amended 1099-R. Check should be reissued in name of new trustee (if it is now to be rolled over), not to e'ee & t'ee jointly.

You need to start by seeing the 1099-R.

[Guest meeh3704]

Once again you guys are on top of it. The benefits person said the IRS was involved but they are not. Let me revise my facts. There has not been a 1099 issued and the IRS is not involved. The check is made payable to Company A's trustee for the purpose of a direct rollover.

The Company is concerned whether it should take the money. The check has been sitting at Company B's TPA uncashed and not earning money for two years. Is there any IRS guidance (regs, plrs, etc.) for something like this? Or is it as simple as the plan can take it as a direct rollover because the participant never touched the money?

[Guest mjb]

Once again you guys are on top of it. The benefits person said the IRS was involved but they are not. Let me revise my facts. There has not been a 1099 issued and the IRS is not involved. The check is made payable to Company A's trustee for the purpose of a direct rollover.

The Company is concerned whether it should take the money. The check has been sitting at Company B's TPA uncashed and not earning money for two years. Is there any IRS guidance (regs, plrs, etc.) for something like this? Or is it as simple as the plan can take it as a direct rollover because the participant never touched the money?

Since the check is more than 6 months old is will not be accepted for deposit by the bank for company A's plan. There is no time limit to completing a direct rollover to another plan so a new check needs to be prepared payable to the Trustee of Co A's Plan. Company B's TPA will owe interest to the participant for lost investment income.