401k overpayment to employee that left

[polomaan]

My wife left a job in CA on good terms in 2013, and received a letter of an overpaid match to her 401k in July of 2015. The amount is about $1000. First letter ignored. Second letter threatened collections. I spoke with HR and they are sending us audit evidence to show the overpayment, which stopped the clock on collections. I don't feel like the audit was done timely, and do not want to give the money back unless I am sued and a judgement entered against me. Can they legally send me to "collections" or must they sue to recapture the funds? What are my options? We used the 401k to pay for professional graduate education tuition, and would be paying out of pocket (with student-loan money).

[hr for me]

Any one can send someone to collections for just about any reason if money is owed. Often times the collection agency will require proof of the debt if you ask for it which is probably why HR is going to send you the evidence now. It would be the same evidence a collections company would ask for. There is nothing the collection company can do if you choose not to pay the debt except to keep hounding you and putting it on your credit report. Different uses of the credit report can matter (car insurance checks it in the calculation of your rates, car loans and home mortgage interest rates can depend on your credit, some potential employers may check it depending on the job position, etc) That is the big stick that they hold -- how it can affect your future credit.

To get a garnishment on wages though, the employer would have to go to court and get a judgment against you. And it is possible in that case that they wouldn't win the case due to reason,timing, etc. The court may decide it is a mistake the employer has to eat. (that's assuming CA allows for garnishments for reasons such as this -- I work in a state that protects employees from most garnishments -- just child support, back taxes and student loans)

Will they do either? you can never know until it happens. It could just be a threat.

But under my personal belief system, if they could prove their mistake and I indeed owed them and they were willing to work out some type of payoff schedule, I would do my best to do so. I know it is hard when you are in school and on student loans but I would hope since it was their mistake that they would be willing to work with you.

[Lou S.]

Send them a letter telling them you will return the funds on the conditions that they indemnify you for any loss you should suffer from returning the funds as well as paying for any and all accounting fees associated with filing amended tax returns for the years in question and reimbursing you for any taxes the paid that the IRS fails to refund.

[ESOP Guy]

A little context here might help. One the plan is obligated to show that it tried to collect the money before the plan sponsor can just reimburse the plan. As for the timing while it is a little late it might not be as late as you think. A 2013 plan can drag filing their Form 5500 (the tax return a plan has to file) until Oct 15th 2014. That is when most likely the plan audit was done by an outside auditor. So the error very well might not have been discovered until about this time last year.

Next everyone has to look into what do we have to do to fix this and the lawyers chime in. That is how you get to the summer of 2015 to get the first letter asking for the money back.

Most likely they won't take legal action. It will cost more then they will collect. Like I said the plan is obligated to show they tried to collect.

Lastly, if it is determined you in fact owe the money it seems like ethics would say you should pay it back. I agree you have a right to have them document you in fact owe the money. Also, there is the issue of taxes. There will be some costs to you if you pay it back but I doubt they are that large.