Rollover Without Spousal Consent

[EPCRSGuru]

My employer sponsors a 403(b) plan with multiple vendors and no central recordkeeper, which sometimes causes issues for us.

While reviewing the asset transfers processed in 2013, one of our vendors discovered an account for a terminated participant that was transferred to another vendor and reported as an asset transfer within the same plan. However, the participant was moving money to a 403(b) plan of a new employer, and the receiving vendor accepted as an external rollover and deposited it to the new employer's plan.

Unfortunately, the paying vendor did not obtain spousal consent for the transfer/distribution.

What are our options? Attempt to reclaim the assets? Have the participant complete termination distribution forms which include spousal consent, and then adjust the transaction to a termination distribution and direct rollover instead of a transfer? Report the distribution as taxable and ineligible for ollover treatment? (That should get someone's attention.) We know we have a compliance problem on our end but is there any potential issue for the receiving employer? We have attempted to contact the participant several times without success.

[Lou S.]

I could be wrong but I think you can self correct if you get spousal consent.

[Peter Gulia]

Before you evaluate correction alternatives, are you certain that there is a defect to correct? Assuming you treat the payment that was made as a distribution, did the terms of your plan require a qualified election with spouse's consent for that distribution?