Overpayment

[52626]

Participant terminated and elected to roll funds to an IRA Rollover - custodian sent the funds to the IRA.

During an internal audit of the plan, it was discovered an incorrect date was provided to the platform and the participant was paid 80% instead of 60%. The over payment is approx. $1,800.

If the employer sends a letter to the participant requesting he contact the IRA custodian and have the overpayment returned to the plan, is there a problem with "ccing" the IRA Custodian on the letter. The participant has not acknowledged the calls from the Plan Sponsor and he may just discard the letter. But by including the IRA custodian on the letter, maybe the IRA custodian will convince the participant to authorize the return of the overpayment.

If the employer does not get the funds back, they will make the Trust whole.

thoughts??

[My 2 cents]

Isn't it true that, on audit, the overpayment as rolled over into the IRA could be challenged, resulting in adverse tax consequences to the participant? The amount in excess of what was due under the plan is not eligible for rollover.

Has an attempt to send the participant (with or without a cc to the IRA Custodian) a certified letter alerting him or her to the overpayment and the potential problems that could arise if the overpayment is not returned?

[52626]

I am not sure if the client sent a certified letter to the participant. Assume the participant does not return the overpayment. Does the Plan re issue the 1099R showing only the portion eligible to be rolled over as a code G? Then how do they report the overpayment?

Isn't the participant subject to an IRS 6% penalty on the excess amount unitl it is removed from his account?