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Uncashed checks returned to employee account in terminated plan


Guest carolg

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Guest carolg

We terminated our Erisa 403b Plan and our final 5500 was filed in 2010. I have just been informed that there were two distribution checks from 2008 that were never cashed and the funds were returned to the "closed" 403b account on 6/15/2012. I am in contact with the two participants and distribution paperwork is being completed to remove the assets (again). What are our reporting requirements in this situation?

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We terminated our Erisa 403b Plan and our final 5500 was filed in 2010. I have just been informed that there were two distribution checks from 2008 that were never cashed and the funds were returned to the "closed" 403b account on 6/15/2012. I am in contact with the two participants and distribution paperwork is being completed to remove the assets (again). What are our reporting requirements in this situation?

I am assuming that at the time the plan was terminated in 2010 all plan assets were reported as distributed on the 5500. Just re issue the checks to the same payee since legally they are entitled to the funds.

Q were 1099Rs issued in 2008? If so did the participants pay income tax on the distributions or were the checks issued to the participants as a direct rollover to a custodian but never deposited with the custodian? I would inform the participants to check with their tax advisor regarding tax reporting. If the checks were payable to a custodian as a direct rollover there is no time limit for depositing the funds in the IRA or plan.

mjb

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Guest carolg
We terminated our Erisa 403b Plan and our final 5500 was filed in 2010. I have just been informed that there were two distribution checks from 2008 that were never cashed and the funds were returned to the "closed" 403b account on 6/15/2012. I am in contact with the two participants and distribution paperwork is being completed to remove the assets (again). What are our reporting requirements in this situation?

I am assuming that at the time the plan was terminated in 2010 all plan assets were reported as distributed on the 5500. Just re issue the checks to the same payee since legally they are entitled to the funds.

Q were 1099Rs issued in 2008? If so did the participants pay income tax on the distributions or were the checks issued to the participants as a direct rollover to a custodian but never deposited with the custodian? I would inform the participants to check with their tax advisor regarding tax reporting. If the checks were payable to a custodian as a direct rollover there is no time limit for depositing the funds in the IRA or plan.

Originally the checks were made payable to a custodian as a direct rollover. Now one of the employees has opted to take a direct payout and will therefore receive a 1099R for 2012. The other employee terminated and can't roll the funds into our other retirement plan. She hasn't gotten back to me since I informed her of this.

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So there was no taxable distribution in 2008 because both distributions were direct rollovers. I have a queston as to whether a participant who fails to deposit a direct rollover with a custodian can request a change in distribution option to elect a lump sum when the new check is issued. While the plan can reissue a new check to the same payee to replace the stale check originally issued to comply with the requirement to distribute the benefits, I dont think the participant can elect to change the distribution option to a lump sum because the doctrine of consistency prevents a taxpayer from benefiting from a failure to comply with a tax provision that was previously elected, i.e., a direct rollover. I am assuming that the taxpayer listed the distribution from 2008 as a rollover to avoid taxation even though no rollover occurred. I dont think the taxpayer can now elect to receive a taxable distribution of the funds that were previously reported as a rollover in 2008 because there would be two different tax reporting events for the same distribution. Participant needs to consult with a tax advisor before electing a distribution of the funds.

mjb

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I have a queston as to whether a participant who fails to deposit a direct rollover with a custodian can request a change in distribution option to elect a lump sum when the new check is issued. While the plan can reissue a new check to the same payee to replace the stale check originally issued to comply with the requirement to distribute the benefits, I dont think the participant can elect to change the distribution option to a lump sum because the doctrine of consistency prevents a taxpayer from benefiting from a failure to comply with a tax provision that was previously elected, i.e., a direct rollover.

I agree. Whether there is some cite for it (I'm not sure), on a practical level it is so much more sensible to say "sorry, you elected a rollover the first time, we already issued a 1099-R on that option, and the plan does not exist anymore so your election cannot be changed. We can change the custodian if you want." I mean, this person can just roll it to an IRA and then immediately take it out, so it's not like it's any kind of a hardship. Otherwise, you open up questions about whether the plan is brought back into existence and must file a return; this way, it's really between the participant and the investment company and there is tax consistency on the reporting.

Ed Snyder

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