Improper In-service Distribution

[Spencer]

Client has recently hired new HR manager. She discovered that last year, a participant was allowed to withdraw 100% of her account balance although she never terminated employment. Plan allows in-service distributions at age 59.5, but participant was only 53. Hardships are not allowed. Loan are permitted, but only up to 50% of vested balance.

What is the remedy for this? Retroactively amend plan allow in-service distributions at age 53? What if client prefers not to do that?

Thanks for any suggestions!

[QDROphile]

Retroactive amendment will not work for elective deferrals and certain other contributions that must comply with elective deferral standards.. See Rev. Proc. 2013-12 about improvident distributions.

[MWeddell]

Rev. Proc. 2013-12 substantially improves the situation for you. See Section 6.06(4).

The suggested correction method is to take reasonable steps to have the invalid distribution plus earnings returned to the plan. Also notify the participant that the distribution was ineligible for rollover. However, for impermissible in-service distributions, if the participant does not repay the plan, the employer does NOT have to contribute an amount to rebuild his or her account.

[Spencer]

thank you!

[KateSmithPA]

Would this also apply to a plan that permitted in-service withdrawals from money purchase funds,for participants who were not yet age 65? The correction is to take reasonable steps to have the participant return the funds?

They did not adopt the amendment under PPA and HEART lowering in-service distributions to age 62 and were permitting in-serivce distributions from MPP funds for participants who reached age 59 1/2.

Can they retroactively amend the plan to allow for in-service withdrawals from MPP funds at age 62?