Distribution Debacle

[doombuggy]

I found out yesterday that one of my clients authorized 2 distributions from the plan last year. The plan has individual accounts with Fidelity (who carried out his orders, no problem!). One participant was terminated in early December and received 2 checks last month. Since I have no financial statements (trustee working on that...), I assume that this check was issued with out federal withholding. EE rec'd a total of $849.19. The other distribution was issued to an employee/participant in September for the amount of $3000. This participant had a vested account balance of $4047.03 on 1/1/10. The plan allows for in-service w/d at 59 1/2 (she's 28, so that's out), hardships under the safe harbor standard, and loans, with no restriction on the reason.

1) former employee needs a 1099-R showing the dist; how about filling out a distribution form after the fact?

2) current ee is a bigger problem. From speaking to the trustee this monring, it does not sound like her problems qualify for a hardship ("she needed the money to pay her bills, and she had car problems...") - but that's an assumption on my part. Do you think we can set up part of this distribuiton as a loan (from her safe harbor source) and the remainder as a h/s from her deferrals? Fill out the necessary paperwork and set up the loan repayments going forward, but the loan should be no more than 5 years after the date she received the check? If she doesn't qualify for a hardship, could we do the loan thing to the max dollar amount she can take and the remainder would be a deemed distribution? If the entire distribution should be deemed, how does that effect the plan? The plan does have a bond in plan, for 10% of plan assets. So her 1099-R should be?

What a mess!