Transfer assets from a 401(k) Plan to a DB Plan

[emmetttrudy]

A plan Sponsor inadvertently deposited their DB contribution into their 401(k) plan (plans are with the same vendor). When we noticed we had them transfer the assets from the 401(k) Plan into the DB plan. Later on I was told that this in fact can disqualify the Plan. The money should have been pulled out of the 401(k) plan as a mistake of fact, and then redeposited into the DB plan. Is this true? And what's the difference? I could argue if we had them pull out the money from the 401(k) it looks like the assets reverted back to the employer, which is a no-no also. What would be the correct way to handle this, by law?

[Mike Preston]

Lots of questions, but no specific answer, I'm afraid.

Can we assume that the Trustee of the plans is/are the same? Can we assume that the Plan Sponsor wrote a check to the Trustee and the Trustee deposited it in the wrong account? Or was there a wire transfer to the wrong account? If a wire transfer, was the Trustee a part of the transaction?

Probably more questions to come.

However, there isn't one right answer to the specific question you raised. Different advisors have different opinions on the matter. Certainly, the mistake in fact route is one way to go, but that can lead to big problems for minimum funding if the contribution was deposited into the 401(k) plan anywhere near the funding deadline and not discovered until after the deadline.

I'm sure others will chime in.

[david rigby]

I've seen lots of cases where the ER contribution was deposited into the wrong account/plan, either thru ER error or Trustee error. In all cases, when discovered, the amount was immediately tranferred to the correct account/plan, usually with a paper trail acknowledging this as an "oops". No auditor has raised any questions once the fix was made.

However, Mike's cautions are worthwhile. It may be prudent to get advice of the plan's ERISA attorney, and/or advise the plan's auditor. But do it quickly; there is value in correcting the error as quickly as possible. Don't try to hide anything, and don't avoid written documentation of the problem and the fix.

[emmetttrudy]

It is the same Trustee and Plan Sponsor. We had given them instructions for the account to make the deposit to via email but the 401(k) Plan account # is one digit different and so they misread it. We had them transfer it as soon as we realized the mistake and have a letter signed by the trustee to the vendor asking them to transfer the money because a mistake had been made. So I think it's pretty well documented.