persuading Fidelity to fix an error

[K2retire]

We have a plan that permits IDAs. In 2014 a participant requested a transfer to a brokerage account at Fidelity that the plan trustee understood would be an IDA in the name of the plan. In fact, the account at Fidelity was set up as a rollover IRA. It is not clear if the error in titling the account was Fidelity's or the participant's. The funds were not eligible for distribution.

All of this was discovered over a year later when we (as TPA) requested copies of the 2014 IDA statements to prepare the 5500-SF.

The plan did not issue a 1099-R, as it was not understood to be a distribution. Fidelity has issued a 5498 showing receipt of a rollover.

Fidelity is unwilling to re-title the account in the name of the plan. Instead, they propose to open a new account in the name of the plan, liquidate the assets, and have the participant request a distribution from the IRA to the plan as a "return of excess contribution". I am afraid that doing it that way will trigger some sort of tax liability. Since the distribution in question is large, we'd like to avoid that if possible. And if I'm incorrect about this detail, I'd love to hear that!

Any suggestions about how to fix this?

[movedon]

Unfortunately, I think your issue is a little cloudy as to what the "right" way is to fix it, but I can tell you from experience it would not be out of character for Fidelity to insist on doing something their way even if it's 100% wrong and even in the face of you obviously knowing what you're talking about. I know they love issuing 1099s when money moves around even when the situation is clearly not a distribution. If they treated the money as a rollover in the first place, then they probably issued a 1099 for 2014.

Your best bet is going to be to argue up the food chain until you get someone who is both willing to listen to you with an open mind and also has the discretion to do something about it. There's as at least one employee in their corporate history that meets those criteria, but sadly I don't recall his name. Even if you find him, you might have to yell at him until he almost cries.

[QDROphile]

Fidelity has the attributes of a 900 pound gorilla except for the understanding and respect for ERISA rules, to which it applies the attributes of a hookworm. The only way to deal with Fildeiltiy is to fire it. And given the trouble the plan has now had with Fidelity's faliure to assume its proper role and Fidelity's interference with the fiduciary, the fidcuciary must at least consider firing Fidelity to avoid a breach of fiduciary duty. The fidcuciary cannot allow a service provider to interfere with the fiduciary's judgment.

[Bird]

I laughed when I saw the topic, pretty much knowing what was coming, then laughed some more when I saw the replies. I agree with the responses - my take on it is you can try to argue with them, or you can poke yourself in the eye with a sharp stick and save the time.

If I had good documentation that they did the wrong thing from the beginning, I might be tempted to let them do what they want and then argue it with the IRS when they come calling. That's not a pleasant thought either because you're not going to be dealing with plan folks who might have a clue; you (or the client) will be dealing with someone who has a 1099-R for $X and thinks it is infallible. Sorry, not much help...

[K2retire]

The small bit of good news is that I'm pretty sure Fidelity did not and will not issue a 1099-R for the distribution from the plan since that distribution was made by Empower.

The participant's financial advisor, is acting as the go between with Fidelity, and has not had any luck. In fact, initially they were told that Fidelity is not able to set up an IDA for a plan that they don't control. When we referred them to the account number of another participant in this same plan, we got past that hurdle.

I'm torn between trying to fight Fidelity and simply advising the participant to contact her CPA for further advice. She really shouldn't have to pay the tax on $270,000 because she moved it 6 weeks before she turned 59 1/2!

[Bill Presson]

I really think it depends on what the paperwork that was signed says. If it says it's an IRA account, I think you're out of luck.

[shERPA]

Why not just tell Fidelity to do a rollover from the "IRA" back to the plan. Fidelity will issue a 1099-R for this, and the plan does not file a 5498, so this will eventually result in an IRS letter. I got one myself when I rolled from my IRA to my plan a few years ago. But a simple response that it was a rollover from the IRA to a qualified plan took care of it.

Yes, it is not really a rollover, as it was never really a distribution. But it fixes the error and it is explainable, especially if the documentation for the original IDA request is clear that no distribution was ever requested.

Life's too short to fight Fidelity.

[Kevin C]

If Fidelity won't go for a rollover, it may not be too late to return it as an excess IRA contribution. A search on the IRS website yielded Publication 590-A

http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230873

From the discussion on excess contributions:

If you timely filed your 2014 tax return without withdrawing a contribution that you made in 2014, you can still have the contribution returned to you within 6 months of the due date of your 2014 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed).