Distribution rolloever contained "ineligible" amounts-record

[Guest SusanS]

I rolled my 401k into a rolloever IRA. I have just received a letter from "consultants" (not my original employer, or the fund for which the monies were in) that the distribution was thousands (about 3k) too much. They say they are obligated to submit a form 1099-r in the year 2000, and I should write the current financial institution to request a return to these consultants of the "ineligible" earnings. (Error was double counting of a capital gain dividend that was declared at the end of 98). What further documentation should I request before I instruct them to do so, and what should I expect as a result of this happening, either tax related or ? (made monies off funds since switch)

[Guest RARogers]

To the extent that you received too much, it is ineligible for a rollover.

Are you saying that the plan paid you too much, and now it is asking for a repayment? If this is the case, I'd want to be convinced that this was the case, and it would take more than just a letter from the consultant. I'd want a letter from the plan administrator - which would normally be the Plan Committee or the Plan Sponsor.

If you're convinced that there was a mistake, I'd make the payment, but I wouldn't pay the consultant. I'd make the check out to the plan itself (the trustee).

I would not give them any earnings - I don't think they're entitled to it.

There is a rule that allows you to take out excess contributions to an IRA that are made because of misreporting to you of the eligible rollover amount without the 10% early withdrawal penalty.

You'd also have to withdraw the earnings on the excess amount - I believe you would have to pay the early withdrawal penalty on this.

This is extremely complicated - I'd be careful - make them do the work, but you should consider getting professional advice. Something you should propose is that they pay you to hire a professional advisor - say $1000 - to review their letter and give you independent advice.

[Guest Mister Charlie]

Be careful about not returning the earnings on funds that were not yours to begin with. Usually, the true owner (bank,etc.) is entitled under the "Unjust Enrichment" regulation which is enforced by the OCC. This part of the picture is part of banking in general, more than ERISA.

[Guest M. Emanuele]

I have a question along these same lines. I rolled my

401(k) into an IRA in January. I received a notice telling me that because the plan failed nondiscrimination testing and I was highly compensated almost 4K was an ineligible rollover amount and that I should contact the institution to where I rolled the money to have it distributed to me. What are my options? Note, that I stopped contributing to the Plan in June 2000 and I received a return of contribtutions plus earinings for the 1999 plan year on 12/23/00. When I was required to sign to receive this return, I doubted the accuracy of the census data on which the test was predicated. Given the history, shouldn't the administrator have been aware of the potential problem--which I frankly believe was solved by my discontinuing contributions to the Plan (again census data is inaccurate and no changes have been made to correct it). Can't the Plan sponsor make a contribution on behalf of the nonHCEs to bring the Plan into compliance?