DB Plan Overpays lump sum & Participant Rolls into IRA

[Guest jfreeborn]

I wasn't sure what board to post this in, so I am posting it here and in the IRA section.

I have a client (the participant) who received a lump sum payment in December 2007 of around $150,000 from a defined benefit plan, and she rolled that over to an IRA. Last month, the participant received a notice from her former employer that the plan overpaid her by about a thousand dollars, and that the overpayment may be treated as an excess contribution to her IRA, subjecting it to a 6% excise tax, imposed each year until the excess contribution is distributed.

Questions:

What is the best route for the client if she does not want to repay the overpayment?

Can this amount really be treated an an excess contribution?

And even if it can, wouldn't the best fix be for the client to take out the excess amount from IRA and keep it? I doubt the employer would sue over a thousand dollars.

Thanks for any adive you may be able to provide

[david rigby]

Have you reviewed Rev. Proc. 2008-50?