unauthorized distribution

[Guest lminsky]

I have a "situation" with a DB plan that only allows lump-sum payments if a participant's accrued benefit is less than $10,000. Recently, an IRA rollover was made for retiring participant with a $40,000+ benefit. Obviously, this is a failure to follow the terms of the plan and perhaps a violation of the exclusive benefit rule (at least according to the IRS).

I assume that this can be corrected under APRSC but my primary question is how best to accomplish this if the participant does not want to return the money. I dont think that the plan has any recourse against the participant (or any leverage- ie. the threat of taxes or penalties). If there are any potential pitfalls for the participant I think that the plan has a "duty" to point them out, so if anyone can think of some- please let me know.

Any thoughts would be appriciated!

[Guest kodle]

I have done a couple of VCR submissions on the same type of topic... improper distributions, and I assume that the same correction methods would be acceptable under APRSC. This is one of the few instances where the IRS acknowledges that there is little that the plan sponsor can do to get the money back. The IRS has approved correction by merely writing the former participant a lettter, explaining that the distribution was improper under the terms of the plan, and offering to take the money back if the participant desires. You do not need to threaten the participant, just make the offer. The IRS has stated in my VCR submissions that this is enough to correct the bad distribution, even if the participant never responds.