Unvested portion of balance erroneously Distributed - Former Participant will not return

[JesseQG]

A participant took a rollover distribution in 2012. The custodian distributed her profit sharing balance as though it were 100% vested; she was only 60% vested resulting in a distribution of around $2,000 more than she should have received. The forfeitures are used to reduce the following plan year's employer contributions. Repeated attempts to contact her and request she return the funds have been unsuccessful.

The plan sponsor has stated that he will reimburse the plan for the amount that should have remained.

Should an amended Form 1099-R be filed? Technically, a portion of her rollover is ineligible. If that's the case, should that portion be taxable?

Thanks

[chc93]

What about contacting the rollover institution...

[QDROphile]

You should get acquainted with Rev. Proc. 2013-12 and what is suggests about your specific question as well as the greater implications. An amended form 1099 is appropriate and any nonrollable distribution amount is taxable. Maintaining ineligible amounts in an IRA or other eligible retirement plan has adverse consequences.