Participant cashed out with incorrect vesting

[Karoline Curran]

Hello all.  I have a participant who had an account at Morgan Stanley.  His vested account balance was less than $200 so the client, after many tries,  had him cashed out; however, despite many emails from me to Morgan Stanley that he was only 20% vested, they cashed him out at 100%, so he got around $800 too much..  It's a 10/31 plan year and I only discovered this last week when I did the valuation and looked at his March statement.  Is there any recourse? Pretty sure the participant is not going to give the money back and the client has since moved the funds to Charles Schwab, so this person doesn't have an account at CS.

[RatherBeGolfing]

The $600 over payment has to make it back to the plan.  If the participant won't pay it back, the trustees/plan sponsor is on the hook.  Since its an MSSB mistake they should pay it, but since the client has moved on that might be difficult.  They need to suck it up and make the plan whole and then try to get money back from the participant or MSSB.

As a side note, was this a MSSB brokerage account?  If it was, then its pretty clear who is at fault since you have to put the payout amount AND what to do with any funds left over.  If MSSB paid an amount other than on the form, they will make it right.

[david rigby]

Don't overlook the plan responsibility to ask the participant for the overpayment, noting that such overpayment is not eligible for rollover.  (You may not get it back, but the first step is to ask.)

[Bill Presson]

This is a good example of why brokerage firms should never process distributions.