Overpayment on Distribution?

[Guest algeis]

We have a balance forward, pooled account plan; an employee took a hardship distribution in April 2010; she then terminated employment in November 2010, when her termination distribution was processed the processor who prepared the paperwork; indicated to cashout her entire account balance, she forgot to minus out the hardship distribution that took place earlier in the year so she was over paid by $2000(the amount of the hardship). 2008-50 states that the overpayment plus interest must be repaid to the plan. My question is that if the terminated employee does not have the means to repay, we can push back on the sponsor to pay back the $2000 plus interest which will go into an unallocated account. It's safe harbor so he can use the $2000 towards the 2011 safe harbor which will be made sometime mid 2012. This same participant is due a safe harbor contribution for 2010, which must be funded by 9/15 (on extension). In speaking with co-workers; one feels that if she cannot pay back the $2000 she should not receive the 2010 SH contribution. Or make the 2010 safe harbor to the plan, but not pay her out and forfeit that. I don't think this is an option, the contribution still must be made to her and she is entitled to the additional distribution ?

Thanks

[K2retire]

It is unlikely that she will repay the overage.

At this point she has a negative account balance. I would allocate the contribution as required, and see if it is enough to bring her account balance up to zero. You can then decide what else to do depending on the result.

[Guest algeis]

It is unlikely that she will repay the overage.

At this point she has a negative account balance. I would allocate the contribution as required, and see if it is enough to bring her account balance up to zero. You can then decide what else to do depending on the result.

Unfortunately the 2010 SH contribution is not enough. THe sponsor is required to make the 2010 contribution, he has no other option correct? He cannot say to her that he will hold that until she repays the $2000 plus interest correct? Can he make it, and then forfeit it and she can then fund the difference? I wouldn't think so since it's 100% vested.

[ESOP Guy]

It is unlikely that she will repay the overage.

At this point she has a negative account balance. I would allocate the contribution as required, and see if it is enough to bring her account balance up to zero. You can then decide what else to do depending on the result.

Unfortunately the 2010 SH contribution is not enough. THe sponsor is required to make the 2010 contribution, he has no other option correct? He cannot say to her that he will hold that until she repays the $2000 plus interest correct? Can he make it, and then forfeit it and she can then fund the difference? I wouldn't think so since it's 100% vested.

You make a bunch of confusing statements in my opinion. One of them is this conversation about forfeitures. You would put the money into her account. If it still has a negitive balance there is nothing to forfeit. Her balance is just less than zero.

Also, the 2010 contribution and this error just have no bearing on each other. He must fund the contribuiton for 2010.

By the way if the employer puts any money in it is NOT a contribution. It can NOT count towards the 2011 S.H. contribution.

I also seem to recall there are DOL rules that say the trustee has to make an effort to collect the money due from the person before the employer can put the money in.

I am not trying to be mean, but I have been slow to offer advice because the nature of your questions seem to reflect a serious misunderstanding of how a balance forward plan would work. If you can find experienced help from someone who has full knowlege of this plan and its particular situation I would advise it.

Edit fixed minor typos

[Guest algeis]

It is unlikely that she will repay the overage.

At this point she has a negative account balance. I would allocate the contribution as required, and see if it is enough to bring her account balance up to zero. You can then decide what else to do depending on the result.

Unfortunately the 2010 SH contribution is not enough. THe sponsor is required to make the 2010 contribution, he has no other option correct? He cannot say to her that he will hold that until she repays the $2000 plus interest correct? Can he make it, and then forfeit it and she can then fund the difference? I wouldn't think so since it's 100% vested.

You make a bunch of confusing statements in my opinion. One of them is this conversation about forfeitures. You would put the money into her account. If it still has a negitive balance there is nothing to forfeit. Her balance is just less than zero.

Also, the 2010 contribution and this error just have no bearing on each other. He must fund the contribuiton for 2010.

By the way if the employer puts any money in it is NOT a contribution. It can NOT count towards the 2011 S.H. contribution.

I also seem to recall there are DOL rules that say the trustee has to make an effort to collect the money due from the person before the employer can put the money in.

I am not trying to be mean, but I have been slow to offer advise because the nature of your questions seem to reflect a serious misunderstanding of how a balance forward plan would work. If you can find experienced help from someone who has full knowlege of this plan and its particular situation I would advise it.

I have received a few reponses from co-workers and others which do not seem right to me, which is why I posted on here. I too feel that the 2010 SH absolutely, positively must be made to her account. She is a terminated employee and does not have the funds to repay the overage of $2000. Either way regardless of who repays the $2000 it must be deposited into the plan and be placed in an unallocated account, to be used to reduce employer contributions in the current year and succeeding year(s) so he can use the $2000 to reduce the 2011 safe harbor contribution. I believe that the SH for 2010 must be made and that the $2000 has to be funded back to the plan and that's the way it is to be corrected. I was receiving "what if" scenarios such as deposit the SH, distribute to her; have her endorse the check over the client and then deposit that along with the difference to make up the $2000, others saying to deposit the 2010 SH then "move" it to the unallocated/forfeiture account and have the difference funded to make the $2000. This is something that I haven't ever experienced before and our firm only has a couple balance forward plans.

Thanks

[K2retire]

I agree that it still doesn't sound like you're understanding the balance forward plan. I'm making up numbers for this illustration to see if it helps.

At the moment, this participant has a balance of ($2,000). When the 2010 safe harbor contribution is made, her balance will increase by the amount of that contribution to something like ($1,500). At that point, she or the plan sponsor only needs to pay back the ($1,500) to make the plan whole. Once that happens, her balance is zero. There is nothing left to transfer to a forfeiture account.