Reinstate Forfeitures

[PFranckowiak]

Have a 401(k) Plan with a Profit Sharing Accont (no match)

Joe terminated was paid his deferral, but was 0% vested in his PS account balance.

Joe came back to work after being gone about a year.

According to the document he comes back in as of date of rehire and want to have his forfeited PS account reinstated.

1. The plan document states that he has to repay his entire vested balance. I assume that this includes his deferral.

2. If he repays his deferral, I assume again this is after tax money. Putting it into his deferral account, once he terminates again - this money would then be taxed again????

Seems like if the above is true, he should wait until he is vested before he repays the 401(k) money due to the double taxation.

I have been doing 401(k) plans a long time and have never had anyone want to repay their balance. (I can see why he might want to as the PS was large enough to want to get, I just would wait as he has five years to do it.

(Vesting is 3% cliff)

What do the rest of you think???

Thanks for your help.

Pat

[masteff]

Yes, he has to put back all that he got out unless he can show it went to a rollover account without comingling w/ other funds and the balance did actually decline (if it went to an IRA, ask him request a statement for the full life of the IRA, any competent IRA firm can produce this). (or at least that's my interpretation, I could see argument for having to restore the exact dollar amount.)

If he does a return rollover of the funds, then you put them into a rollover source where they are eventually taxable. If he restores his account using after tax dollars, then you get stuck having to track after tax basis.

http://benefitslink.com/boards/index.php?showtopic=44535

http://benefitslink.com/boards/index.php?showtopic=10381