missed 1099R and 945

[Guest apsgrazetti]

We recently discovered that a broker surrendered a participant's insurance policy during 2008 and placed the proceeds into the participant's personal account. Therefore, the participant had a taxable distribution from the plan in 2008 for the amount of the cash surrender. Federal withholding was not done and the particiant was never issued a 1099R.

What is the best way to fix this? Issue a 2008 form 1099R now and pay late penalties? Does the employer need to pay the federal withholding? What about the 945 filing for 2008?

Any suggestions would be greatly appreciated.

[K2retire]

Did the participant have a distributable event? If not, you have more problems than just late tax forms.

[Guest apsgrazetti]

Yes, he met the requirements for an in-service distribution under the plan.

[Bird]

We recently discovered that a broker surrendered a participant's insurance policy during 2008 and placed the proceeds into the participant's personal account.

shocking

I would do a 1099-R/1096 now and pay the penalties if and when they ask...we've done one or two of these and never heard of the penalties being assessed.

There's no 945 if there was no WH.

Failure to withhold is one of those errors without real consequences. Unless the participant sues to force someone, I guess the Plan Administrator, to pay the WH for him, then nothing happens. And if the participant has a claim against the PA, the PA has the same claim against the participant for the money that he should not have received.

(The participant might have been entitled to an in-service, but I doubt he was given the proper notice and forms to complete the distribution.)