in service distribution made but not allowed to participant/fiduciary

[Chalk R. Palin]

A 401k participant, who happens to also be a fiduciary, requested an in-service distribution after he turned 59 1/2. The plan administrator allowed the distribution, which the participant then rolled over to an IRA. The terms of the plan only allow in-service distributions upon turning 62 years of age.

Transaction occurred in 2014 and discovered in 2015. Amount was approximately $500,000, which represents about 25% of plan assets.

The operational failure seems easy enough to correct, but is this not also a prohibited transaction? Any suggestions for addressing the prohibited transaction? Apply for individual exemption? Would a retroactive plan amendment allowing the distribution be feasible? If the distribution was allowed under the terms of the plan, a statutory exemption appears to apply.

[Peter Gulia]

Was the participant you describe a highly-compensated employee?

Is the employer willing to amend the plan uniformly for all participants?

[My 2 cents]

Are in-service distributions after 59 1/2 something that CAN be amended into a plan? Is the ability to permit in-service distributions only after 62 something PPA added for only DB plans (except those able to justify an earlier normal retirement age) or all plans in general?

[Mike Preston]

The requirement is for "pension" plans, I believe, so it applies to DB and MP, but not PS and 401(k).