Return of ADP Refunds

[bzorc]

An audit client of ours just received notification from their TPA that, due to incorrect compensation provided for the PYE 12/31/2013, the ADP test was re-done and 4 participants who received refunds actually were "over-refunded". The TPA has requested that the 4 participants return the excess refund to the plan, and then a corrected 2013 Form 1099-R will be issued, reporting the correct distribution. The TPA then advises the participants to "seek professional advice when amending their 2013 personal tax return". The TPA has also suggested the auditor be contacted to "correct the 2013 audited financial statements".

I have never seen a TPA ask for participants to return a portion of their ADP refund. Does anybody have experience with this? The amounts are around $300 per participant; therefore, amending their personal returns for 2013 might net them a $50 refund, and cost them hundreds in tax preparation.

[QDROphile]

TPAs should not do anything extraordinary except at the direction of the plan administrator. As for what was done, how would you have corrected an excess distribution? Guidance under EPCRS says to request return of the excess.

[bzorc]

The Plan Administrator had no idea that this was going to occur; they forwarded us the e-mail requesting the changes with the question "What is going on here?". I agree that a request should be made to return the excess, but how often does the return of funds occur?

[QDROphile]

I have not enough empirical or anecdotal information to answer, but I don't think it matters.